The FXI has been concerned for some time now about the direction in which the Independent Broadcasting Authority is heading with respect to its independence. Making the case for the independence of the IBA, especially its financial independence, is not an easy task given that soon after its establishment, the IBA was wracked by controversy over the handling of its finances. In response, the government has been keen to secure the accountability of the IBA. It has set in place tight financial controls that in our view may be at the expense of its independence. Public opinion may well support this move, given that in the eyes of the taxpayers, the IBA has been guilty of squandering its money.

Therefore, it is important to state at the outset that our focus is on defending the principles that underlie broadcasting regulation, namely diversity, freedom of expression and universal service. If the existing arrangements around the institution tasked with regulating compromise these principles, then we need to come to their defence, irrespective of whether it is the government, the industry or the regulator itself that compromises them.

This contribution proposes practical alternatives to how both the independence and accountability of the IBA can be secured simultaneously, in the spirit of defending its underlying principles.

2. The IBA

2.1 The constitution and the 'independent institutions'.

According to s. 55 (2): The National Assembly must provide for mechanisms -

• to ensure that all executive organs of state in the national sphere of government are accountable to it; and
• to maintain oversight of -
  • the exercise of national executive authority, including the implementation of legislation; and
  • any organ of state.

(2) These institutions are independent, and subject only to the Constitution and the law, and they must be impartial and must exercise their powers and perform their functions without fear, favour or prejudice.

2.2 Is the IBA a Chapter 9 institution?

There has been some controversy about whether the IBA should be considered a Chapter 9 institution, given that the IBA is not listed at the beginning of Chapter 9 of the constitution (s. 181 (1)) as a state institution strengthening constitutional democracy. However, s. 192. of Chapter 9 provides for an independent authority to regulate broadcasting in the public interest, and to ensure fairness and a diversity of views broadly representing South African society, which suggests that it was the intention of the constitution-makers for it to be considered as such.

It is possible that this seeming anomaly came about because the drafters of the constitution were reluctant to list the regulator as the IBA given that the name of the regulator may well change in the future. In other words, the fact that the IBA has not been named in s. 181 (1) gives the legislators the flexibility to change the name, and even the shape of the regulator, provided it is constituted according to the provisions of s. 192. This flexibility is important given that a merger is currently taking place between the IBA and the South African Telecommunications Regulatory Authority (SATRA). Clearly, a new name will have to be given to the merged body, possibly the 'Independent Broadcasting and Telecommunications Authority (IBTA)'.

In the light of the above, the fact that the IBA has not been listed in s. 181 (1) may well be for good reasons, so should not necessarily be taken to indicate the constitution-makers' lack of certainty about its status as a Chapter 9 institution. This seeming ambiguity should not detract from the fact that it terms of where s. 192 falls within the constitution, and in terms of the spirit of s. 192, any regulator tasked with giving effect to this section (presently the IBA) is to be considered a Chapter 9 institution. Hence, once the merger has taken place, the new body will have to enjoy the same guarantees and rights as those conferred on the IBA.

2.3 What are the implications of the IBA being considered a Chapter 9 institution?

One of the most important implications of the IBA being defined as a Chapter 9 institution is that all the rights and obligations with respect to these institutions as laid out in s. 181 apply to the IBA as well (and by extension, any new body that takes its place). These include the guarantee of independence, their being subject only to the constitution and the law, and an injunction to be impartial. In addition, the state must assist and protect these institutions to ensure their independence, impartiality, effectiveness and dignity, and they must account to Parliament, including reporting on their activities and fulfilment of their functions to the National Assembly at least once a year.

According to the Human Rights Commission, '..this means that there is a positive duty on the state to pass necessary legislation or take other measures to assist and protect the commission and to make resources available which are necessary for the effective functioning of the Commission'. The Commission cites the Paris Principles, which provide minimum standards on the status and advisory role of national human rights commissions.

2.4 How should 'independence' be defined in relation to a broadcast regulator?

To answer this question, we need to establish what the purpose of regulation is in broadcasting. The traditional argument for regulation is based on the scarcity of the frequency spectrum and the potential for interference between stations if frequencies not allocated in a controlled manner. However, the requirement of democracy place an obligation on the regulator to provide access to frequencies to ensure diversity, plurality and quality in the choice available to people, and to guarantee access. The assumption behind this obligation is that if the frequency spectrum remained unregulated, those with the greatest resources would monopolise this resource, resulting in access to broadcasting being determined by wealth, and by extension, one's proximity to urban areas. Another interrelated reason that is often cited is to regulate content in the public interest.

Although regulation has an economic and industrial component, the purposes of regulation can be related very easily to particular human rights as well - such as freedom of expression and access to information - where it could be argued that these rights could not be implemented in relation to broadcasting without regulation of the frequency spectrum. This is especially so with respect to s. 16 (1) (b) of the freedom of expression clause in the South African constitution, which states that '...everyone has the right to freedom of expression..including freedom to receive or impart information or ideas': this right would be impossible to operationalise without regulation in the public interest, especially the right of people actively to propagate information, through broadcasting or any other media, as a component of freedom of expression. If broadcast regulators have a role to play in implementing human rights, then some of the work that has been done in defining what constitutes 'independence' in relation to national human rights institutions should be taken into account.

For example, according to the Paris Principles, a national institution '....shall have the infrastructure which is suited to the smooth conduct of its activities, in particular adequate funding. The purpose of this funding should be to enable it to have its own staff and premises, in order for its to be independent of the Government and not subject to financial control which might affect its independence'. In addition, the United Nations has sought to give content to the term 'independence', by identifying four elements:

• Independence through legal and operational autonomy,
• Independence through financial autonomy,
• Independence through appointment and dismissal procedures,
• Independence through composition.

(2) The President exercises the executive authority, together with the other members of the Cabinet, by -
(b) developing and implementing national policy.'

However, the IBA would need to develop micro- (or regulatory) policies to interpret the government's broad policy framework into regulatory practice. A key feature of the National Assembly's oversight role, therefore, is to ensure that the crucial distinction between macro- and micro- policies is upheld, as there will be ongoing tension between the IBA and the executive arm on where to draw the line. The latter, especially, cannot be expected to police itself in this regard, and failure to uphold this distinction will impact on the IBA's independence. Therefore Parliamentary oversight is necessary on this issue to ensure the executive's accountability and the IBA's independence.

2.5 The IBA's funding

One of the key features of independence outlined above is financial independence: it is this matter that we shall focus on mainly. According to s. 15 of the IBA Act, the Authority is funded from a Parliamentary appropriation, licence fees, income from the deposit of surplus monies, loans, fines and the proceeds of sales. In terms of an amendment to the Bill, appended to the Broadcasting Bill, the IBA's income will now be restricted to the Parliamentary appropriation and, seemingly, application fees.

Presently, in terms of s. 18 of the IBA Act, money not immediately required for contingencies or to meet current expenditure may be invested in a call account or short term fixed deposit, or the Corporation for Public Deposits for a period of time approved by the Minister. This section is to be replaced by an amendment brought in by the Broadcasting Bill, which obliges the IBA to pay into the National Revenue Fund all fees and penalties received in terms of s. 67 of the IBA Act. Apparently, this move has been taken to bring the IBA into line with the Public Finances Management Act, which states in s. 13 that all money received by national government (including constitutional institutions) must be paid into the national revenue fund. This means that the IBA will not be able to retain its main source of income, namely licence fees.

2.5.1 The past

When the IBA was initially set up in 1994, money came from the Department of Home Affairs as a carry-over from the pre-democracy period when broadcasting fell under this department. When a decision was taken to place broadcasting under the Ministry of Posts, Telecommunications and Broadcasting, the budget moved over to this Department.

In 1996, the IBA was rocked by controversy over its finances, especially the extravagant spending habits of a number of its councillors. Accounting firm Deloitte and Touche were called in to institute proper financial measures, and the Auditor General produced a special report on the matter. In his findings, the Auditor General noted a 'serious lack of management measures and financial controls to ensure that resources allocated are utilised economically, efficiently, effectively and with probity'. Most of the areas flagged as problems in this report, such as excessive use of credit cards and control over consultants and contract workers, were a result of a lack of policy in those areas.

This report, and a subsequent meeting with the Parliamentary Standing Committee on Public Accounts, was followed by the resignation of five councillors and the suspension of the CEO concerned. A new CEO has since been appointed. The Public Protector followed up with a report on the affairs of the IBA, which came about when IBA staff asked his office to intervene on 11 October 1996, on the basis of allegations of maladministration, misappropriation of public funds and misconduct by the-then Chief Executive Officer. According to the Public Protector's report, a great deal was done following the appointment of Deloitte and Touche to remedy the situation, including:

• The setting in place of proper financial and accounting systems
• Regular financial and management reporting to senior management and the Council
• Verification of a fixed assets register
• Recovery of expenditure from Councillors with respect to non-business related expenses
• Austerity measures to counter overspending
• Development and implementation of interim financial policies and procedures, including the compilation of a detailed manual covering areas such as travel, reimbursive expenditure and telephone limits.

During the period of Deloitte and Touche's intervention, a monthly drawdown system was instituted by the Department, where every month a twelfth of the budget was payed over to the IBA. In 1997, the Department started to move to a system whereby the drawdown was released on the basis of monthly expense reports. Presently, the IBA accounts to the Department on a monthly basis: this report includes copies of bank statements, and an expenditure estimate for the coming month, including an estimate for expenditure on specific projects. If there is a variation in terms of the amount the IBA spends in that month (in other words, if it is either above or below a twelfth of the annual amount), then the Department adjusts the drawdown accordingly.

2.5.2 The present

Presently, the IBA's budget is approved as a line item in the general budget of the Department of Communications, and is subjected to the same procedures as other Departmental budgets in the overall budget drafting process. The parliamentary appropriation is then administered by the Department of Communications, and is released to the Authority through a monthly drawdown.

In April of each financial year, the IBA motivates to the Department of Communications for a particular budget in a meeting where the Department of State Expenditure is present. In terms of the Medium Term Expenditure Framework, budgets are drawn up on a three year cycle, and re-budgeting may have to take place on the basis of interaction between the IBA and these Departments. The IBA is not in a position to go to State Expenditure directly to motivate for its own budget.

Discussion then ensues between the Departments of Communications and Finance, and a budget allocation is arrived at and presented to the National Budget Committee. The Director-General then consults with the Minister about the budget, which is then discussed in Parliament, approved, and spent according to the line items. The IBA is represented as a line item in this budget. Expenses such as the payment of salaries is now going to be linked to the civil service salary scales in terms of an amendment to the IBA Act.

One of the problems of this procedure that has been brought to our attention is that if, during negotiations, the IBA's budget is altered, it is not clear whether the decision to do so has been taken by the Department of Finance or the Department of Communications. This is not surprising, as the tendency has been noted for this budget-drafting stage to be shrouded in secrecy, given that it is an in-house government exercise. While the situation has been ameliorated somewhat by the introduction of three-year rolling budgets in terms of the Medium Term Expenditure Framework (MTEF), this lack of transparency can still exist with respect to adjustments to the MTEF. The implications of this lack of transparency in who decides is problematic, as questions have been asked about whether budget adjustments take place strictly for financial reasons, or whether it represents an attempt by the Department of Communications to manipulate or curtail the IBA's activities. Whether such manipulation has occurred or not is immaterial: the point is that if the potential exists, then it needs to be addressed.

A related problem is that there is very little space in the budget allocation process to review the Department of Communication's expenses in relation to its portfolio institutions. For example, a media report stated that the Department allocated itself R12.7 million for broadcasting policy. At the same time, the IBA received only R28.4 million of the R31.4 million it requested. According to the Budget Office, Department of Finance, last year the Department of Communications received R271.689 million, which consisted of R4.189 million for broadcasting policy, R31.5 million for the IBA, R234 million for the SABC, and R2 million for community radio. This year, the Department received R17.708 million for its broadcasting policy arm, R35 million for the IBA, R228.5 million for the SABC and R6 million for community radio. The SABC amount includes an amount for the establishment of a new national school of broadcasting. The anomolies with respect to the IBA grant are because an additional amount of R5.2 million was granted to it for the merger. The amount for broadcasting policy is largely allocated to programming, apparently for community broadcasters, involving R2.7 million for children in broadcasting, R3.5 million for youth programming, R2.5 million for women in broadcasting and R3 million for disabled in broadcasting. This leaves R6.008 million, presumably for the development of broadcasting policy by the Department.

Concerns were raised in the Portfolio Committee on Communications debate on the budget about the fact that the budgets of both the IBA and SATRA were being cut back to the point where key core operations were being affected. These concerns were amplified by the chairpersons of both organisations. Yet at the same time, it was pointed out that new projects are being initiated by the Department that are consuming its resources. This debate lasted one morning (the morning of 1 March 1999), and did not involve any civil society input. What makes this debate so difficult to appraise is that at first glance, the redirection of departmental spending is towards important projects. However, if the net effect of this redirection is that the regulator is being underfunded, then the roll-out of the very services that are supposed to benefit from these new projects is being frustrated (the impact of underfunding is fleshed out below in 2.5.3). What should be borne in mind is that it is not the regulator that suffers the most from underfunding, but the broadcasting sector.

Clearly the allocation of funds within a departmental budget is a loaded matter, and the above comments are being made in hindsight about a budget that has already been set. It is impossible to see what the allocations will be in the next two financial years of the MTEF with respect to broadcasting policy, as lump sums have been projected with no line-item breakdowns; so the scope for public scrutiny of the regulator's budget in relation other departmental priorities is not afforded by the MTEF. Hence, the scope for Parliamentary oversight on these matters (and hence public oversight), through advance warning of the projections around the IBA's finances, is limited. This problem has been noted generally in relation to the setting of budgets, and it has resulted in a growing civil society lobby for budget reform to increase Parliamentary and public oversight in the setting of budgets, and we support this lobby. For these reasons, we feel that it would be better if a Parliamentary office set budgets for the IBA and all other Chapter 9 institutions, as attention would be paid to their specific needs and obligations. Budgeting would take place on this basis, rather than in the context of a range of departmental priorities; it would also avoid a potentially politically loaded debate about which priorities are more important in the broadcasting policy budget, as the debate would not even be entered into given that the IBA would no longer be funded out of this budget.

2.5.3 The implications of the IBA's budget cuts for its mandate

A review of existing regime is called for especially in the light of cuts to the IBA's budget, as mentioned above. Apart from the underfunding of the IBA to the tune of R3 million this financial year, the Authority asked for R41.9 million for the last financial year, and received only R31.5 million. Also, the Department has apparently indicated to the IBA that their appropriation is to be reduced even further in the next two years.

Some of the moves that the IBA took in the previous financial year to cut costs included:

• Closure of its provincial offices
• Downsizing of staff, including councillors sharing personal assistants
• Downsizing of secretariat, and placing in CEO's office
• Merging of Licencing and Monitoring and Complaints Department into one department
• Closure of legal department
• Closure of communications department, and appointment of a communications officer based in the Chairperson's office
• Merging departments such as human resources, administration, library, IT and records into a Support Services Department under one head.
• Downsizing of finance and technical departments.

What is clear is that the impact of these budget cuts need to be tracked and an audit conducted, as the lack of funding already seems to be hampering its ability to implement its mandate. This should be a matter of serious concern to Parliament, as the reason why the IBA and other Chapter 9 institutions were set up was in order to protect and support democracy. It therefore does not serve the country or the values of the constitution if they are underfunded to the point where they cannot play this role effectively.

2.5.4 Administering the budget

As noted earlier, the Department of Communications administers the IBA's budget through a monthly drawndown once Parliament has approved its appropriation level. A dispute took place recently between the IBA and the Department about an amount of money frozen in the IBA's account. The amount consisted of a Departmental reimbursement for retrenchment packages, money to facilitate the merger between the IBA and SATRA, and licence fees (which constituted the bulk of the money). Last year was in effect the first year when licence fees began to be paid to any significant degree, and according to the Department of Communications this money should have been paid straight into the National Revenue Fund in line with the old Treasury Act, nonewithstanding the powers the IBA had in terms of its Act to retain this money.

Given that the two amounts were already accounted for, and the third amount was clouded by uncertainty in the light of the conflict between treasury rules and the IBA Act, the IBA did not spend this money. Yet the Department withheld the monthly drawdown for three months on the grounds that, according to Treasury rules, the IBA could not receive its drawdown if there were reserves in their account. The dispute has since been resolved, and the Department has granted the IBA the authority to spend the money on certain agreed-on projects as it was still governed by the unamended IBA Act.

This incident has led to questions being raised in the Portfolio Committee about the extent of the latitude the Department has in relation to the monthly drawdown, although it seems that this incident was a result of a conflict between two Acts and therefore cannot be attributed to sinister motives as some comments in the Portfolio Committee seemed to suggest. If sufficient latitude exists, though, then it is possible for a department to influence the direction of an institution under its portfolio through the manipulation of the drawdown: however, it is unclear as to how possible this actually is in terms of treasury rules. Why the conflict was not resolved earlier is difficult to understand, but if the space exists for departments to it is unclear as to what extent the department has latitude for discretion with respect to the drawdown. It may be possible to manipulate the institution's finances by, for example, withholding the monthly drawdowns, or decreasing the drawdown for specific activities.

This system also blurs the distinction between accounting to Parliament and accounting to the Department, as the monthly activity of accounting in terms of the drawdown becomes possibly even more important for the survival of the institution than the annual formality of accounting to Parliament. In fact, in terms of the current regime, it could be agued that the IBA is nominally independent to Parliament, but substantially accountable to the Department. While the Department is also accountable to Parliament, the Chapter 9 institutions should be operating in a position of equality with the executive structures of government as they have this status in terms of the constitution, and to make them account on a day-to-day basis to particular departments is inappropriate, even if these departments are ultimately accountable to Parliament.

We are also aware of the fact that, with respect to the Human Rights Commission and the Public Protector, the Department of Justice is now turning to a system where it motivates to Parliament for a lump sum, then it decides how much money to allocate to these institutions. As a result, these institutions have to negotiate with the Department for their allocation. While the IBA is certainly not in such an unfortunate position, there seems to be a tendency for the financing of the Chapter 9 institutions to drift in this direction, which makes it even more important that the executive's role in relation to their funds is phased out.

2.5.5 Other sources of income - application fees, licence fees, penalties, etc.

As stated earlier, an amendment to the IBA Act will ensure that the licence fees collected by the Authority will be paid back into the National Revenue Fund, in conformity with the Public Finances Management Act. The net effect of this move, coupled with the declining Parliamentary appropriation, means that the IBA's revenue base is declining, and its ability to make up the shortfall through other forms of revenue is being curtailed.

It appears that the IBA will be able to retain application fees, though. However, this amount is negligible in relation to the overall costs of the Authority, amounting roughly to R1 million per annum depending on whether the IBA's activities in that financial year involve calling for licence applications. The licence fees, however, are a steady source of income, and the amount is set to increase as more competition is phased in.

The licence fees have been calculated to ensure that the IBA is financially self-sufficient by the year 2001, but the pending amendment to the IBA Act will put paid to these plans. Serious questions have to be asked about why a Chapter 9 institution such as the IBA is being made to be almost wholly dependent on a declining Parliamentary appropriation when, according to the Authority's financial projections, it has the capacity to be financially self-sufficient in a matter of two years. This does not mean that the IBA should not receive a Parliamentary top-up if its income is not sufficient, but the IBA's quest for self-sufficiency is an important move in insulating it largely from government funding cuts.

We are of the opinion that unless the IBA be allowed to retain a portion of the licence fee, at worst, or all of it at best, it will find itself increasingly unable to fulfil even the core functions of its mandate. This is a key issue in urgent need of Parliamentary scrutiny, as it is obliged in terms of the constitution to take remedial action if the IBA is being incapacitated.

2.6 What can be done? Two practical suggestions

(i) Seek an exclusion in terms of the Public Finance Management Act

In terms of s. 11 and 13 of the Public Finance Management Act, certain forms of income may be excluded from payment into the National Revenue Fund by the Act or another Act of Parliament; in fact, draft legislation can be introduced to exclude forms of income only after the Minister of Finance has been consulted on the reasonableness of the exclusion and has consented to the exclusion. Also, in terms of s. 92, the Minister may exempt any institution to which the Act applies, or any category of those institutions, from any specific provisions of this Act for a specified period.

Therefore, it is suggested as one option that the IBA's licence fees be exempted from payment into the National Revenue Fund, in terms of one of the above sections in the Public Finance Management Act. It may not be necessary to strike down the amendment to the IBA Act when it comes into effect, as in the event of conflict between these two Acts, the former will in all likelihood prevail.

It is possible that the new body may need a Parliamentary appropriation as a top up for several years, until the revenues that are generated are sufficient to float the IBA (or the new merged body). This appropriation should not be budgeted for as a line item of the Department of Communications, for the reasons given above, but should come from Parliament directly as per the proposals put forward recently by the Human Rights Commission and the Commission on Gender Equality. The IBA, and other Chapter 9 institutions, would present a motivation for the appropriation before a delegated committee of Parliament. The budget would then be included in the Parliamentary budget, and would be motivated by the Speaker. The National Assembly may need to dedicate some time to a debate on the budgets. This method of financing the Chapter 9 institutions will align the funding of these institutions with the their accountability to Parliament, which should make oversight easier.

(ii) Implement a two-tier licence system to cover the operating costs of the IBA

The model being proposed derives from the Canadian regulator, the Canadian Radio-Television and Telecommunications Commission. In 1997, the CRTC instituted a two-tiered licence system as a response to a government decision to grant them vote-netting powers (powers to apply revenues towards costs directly incurred for specific activities by a department or agency). This system replaced the old method of levying licence fees, based on 1.8% of revenue, which were paid into the Central Revenue Fund of Canada. At this stage the broadcasting arm of the CRTC was funded entirely through a government grant. The CRTC lobbied for the new system after threats of cutbacks in the light of general government downsizing, and out of concerns for the Commission's independence. Also, the telecommunications arm of the CRTC had been granted these powers two years earlier; this created an anomaly where this arm was insulated from the vagaries of government cutbacks and control, but broadcasting was not.

The government conceded vote-netting authority to the broadcasting arm after the CRTC devised an inventive system that covered its regulatory costs, without significant increases in fees paid by broadcasters. Also, given that the government in effect could phase out their direct grant to the CRTC - as this new system meant that it was in effect self-financing - it was saved this expense, and still continued to receive part of the licence fee. Also, the government had become increasingly concerned about the direction the Canadian and Australian judiciaries were taking with respect to state agencies levying fees for services rendered: in a landmark judgement by the Supreme Court of Canada (Eurig Estate (Re) 1998: April 27; 1998: October 22 ), it was found that the fees levied through regulations have to be related to the costs of running the relevant body. This was very difficult to achieve through the old method of levying fees, which was imprecise and invariably resulted in more money being paid by the industry than was needed to finance the regulator; in any event the money was paid to the government, not to the CRTC, which made it even more difficult to relate directly the income from the industry to the costs involved in regulating it. The fact that cutbacks would place government in an invidious legal position for the same reason also spurred on their decision to grant vote-netting authority.

After consulting with the industry, the CRTC issued new licence fee regulations in 1997. These regulations placed a cap on the amount of revenue a station can make without being 'taxed' through the fee, and also distinguished between Part I and Part II licence fees. Every eligible licensee was required to pay annually to the Commission a Part I licence fee, payable on 1 April each year, and a Part II licence fee, payable on or before 30 November each year. The exact formula is appended (Appendix 2). Some licensees were made ineligible for the new licence fee, mainly those categories of licensees that paid small licences, and that therefore cost the CRTC more than it was worth to collect and administer licences. These included 'native (sic), community, campus/ community and independent corporations...which derive none of their revenues from the sale of airtime'.

The Part I fee is divided into two sections: an initial amount and an adjustment amount. The first section is based on the following:

• the licensee's fee revenues for the most recently completed return year, less the licensee's exemption level for that return year;
• the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that return year; and © the estimated total regulatory costs of the Commission for the current fiscal year.

The second amount is an annual adjustment amount to the Part I Fee to adjust estimates costs to actual expenditures. Any excess fees are credited to the licensee in the following year's invoice while shortfalls are charged to the licensees. The principle behind the Part 1 licence fee is that the station's financial position in the total industry picture is determined: the more it earns in profit, the greater its contribution to the regulatory costs of the CRTC. Also, the beauty of this scheme is that it enforces rigid financial accountability on the CRTC, in that it is financed only to the level determined in its budget, which is gazetted and therefore available for public scrutiny. Any excess money floating around that may tempt the CRTC into overspending has to be paid back to the broadcasters. It also prevents the CRTC from becoming profit-driven organisation, as it is simply unable to profit from its income.

The Part II fee amounts to 1.365% of a licensee's gross revenue in excess of an applicable exemption limit. A portion of the Part II fees collected by the CRTC is allocated to cover the expenses of Industry Canada (the Canadian Department of Industry) for services provided through its Spectrum Management and Regional Operations Activity, including the certification of broadcast undertakings, the broadcast inspection program and the investigation of complaints of interference to broadcast reception. Even though this fee marked a decrease in the amount of money being returned to the government, the shortfall was made up by the savings on not having to fund the CRTC's broadcasting arm: so if, for example, the government earned $60 million (Canadian) under the old licence scheme, it would earn $40 million under the new one, and save the outstanding $20 million that the CRTC retained as the Part 1 licence fee.

In effect, the Part I licence fee is a fee levied to cover the regulatory costs of the CRTC, while the Part II licence fee is levied as a 'tax' for the management of the frequency spectrum. The Part I fee is retained by the CRTC, but the Part II fee is paid into the Central Revenue Fund of Canada, which is logical given that spectrum management is a government activity.

If this two tiered system were implemented in South Africa, the Part I licence fee could be retained by the IBA to cover its expenses and the Part II licence fee could be paid into the National Revenue Fund. The rationale for proposing this two tiered licence fee is that regulation and spectrum fee management is being separated in terms of the Broadcasting Bill. Spectrum management will be undertaken by a directorate to be set up in the Department of Communications, hence the portion of the licence fee that covers the costs of spectrum management. Also, an attractive feature of this scheme is that it literally saves the government money.

iii. Implement a combination of 1. and 2.

One of the key factors in determining whether the above scheme would work with respect to the IBA is the extent of maturity of the broadcasting industry in South Africa. It could be argued that the Canadian industry is able to support the above scheme because it is sufficiently developed to do so. While the appropriateness of the scheme will have to be measured in hard cash terms, another option involves phasing it in over a number of years and the industry develops sufficiently to support it. According to the IBA, given the rapid growth of the industry in the past few years, they expect to be over-budget by approximately R10 million in the next five years, and the revenues of the major commercial radio and television stations should continue to grow beyond this point (including satellite). The two-tiered licence system may therefore only be feasible after the IBA's income exceeds its regulatory costs significantly.

This could involve recommending to the government that it grant an exemption to the IBA in terms of the Public Finances Management Act, as proposed in point 1., for a set period of time. During this period, as the industry develops and turnover increases, the second option of the two tiered licence system could be phased in.

As noted above, the CRTC scheme was originally implemented in relation to telecommunications, so it may be appropriate in the light of the merger to build this plan into both the telecommunications broadcasting arms as the merger is taking place. As with option 1, a government top-up may be needed for a period of time, which should be administered as per the suggestion in this point.

2.7 Britain and Australia

What is interesting to note is that the Independent Television Commission in the United Kingdom - which as its name implies, regulates television only - has a similar two tiered payment system to the one existing in Canada. A 'tender payment' is made by Channel 3, Channel 5, additional services and certain local delivery service licensees in terms of s. 19, 52 and 77 of the Broadcasting Act of 1990. These payments consist of amounts expressed as percentages of qualifying revenue and annual cash payments. The ITC collects these payments, and deposits them into the Consolidated Revenue Fund of the United Kingdom. These amounts therefore form no part of the revenue of the ITC. The rationale behind this form of payment is that the frequency spectrum is a scarce resource, and that the licensees who profit from the use of this public resource should be 'taxed' for its use by the government.

The ITC itself is funded entirely out of licence fees. Tariffs are published annually for terrestrial licences, licensable programmes, satellite and commercial additional services, and cable and local delivery licences. The tariffs for the first two categories relate to the licensees qualifying revenue and are progressive in that licensees pay proportionally more as their revenue increases. The third category relates to the number of homes connected in the licenced area. The licence fee revenues, however, are substantial: they are expected to total £16.46 million in 1999. However, the ITC is being cited as an example as the principle of two-tiered payments has been accepted in the United Kingdom as well.

Australia, though, operates on a very different basis, in that its financial arrangements around the Australian Broadcasting Authority (ABA) are very similar to those in respect of the IBA. The ABA receives its funding from entirely from the Government, by appropriation. All licence fees collected by the ABA are paid straight back to Government through Consolidated Revenue. The Authority has a budget base, decided previously by the Dept of Finance and Administration (DoFA), which is adjusted periodically for price increases and an annual reduction of 1% for the Efficiency Dividend. From time to time agencies may receive extra funding for new policy, which may be decided on by the Portfolio Dept & Minister, Cabinet or DoFA, or any combination of these depending on each issue. Under the new Accrual Budgeting Framework, which commences 1 July 2000, funding will be determined for a bundle of "outputs" following negotiation between DoFA and the agency. The ABA receives their funding in fortnightly drawdowns from the Department of Communications, Information Technology & the Arts. From 1 July, this year, it will be from DoFA. The ABA has been subjected to budget cuts in recent years, though. According to the ABA's finance officer:

'There is not a mechanism to protect the ABA against budget cuts. In the past, the Cabinet of the day has made a decision to cut budgets by a certain percentage, the most recent being 2 and 3 financial years ago, when they implemented 2% across the board budget cuts. The ABA was subject to these cuts. Nothing is certain in these difficult financial times of reduced government spending.'

3. Conclusion

The key focus of the research being conducted for the Speaker is how the constitutional imperative of Parliamentary oversight can be realised in practice, without undermining the independence of the IBA. Achieving this requires striking a balance between independence and accountability. It could be argued that, far from increasing accountability, the current arrangements around the finances of the IBA actually undermine it in that they are curtailing its ability to implement its broad mandate, in favour of a narrow set of financial accountability objectives involving ongoing executive intervention. Underfunding also delays the development of the broadcasting industry, which will inevitably amount to lost income to the government in the form of revenues and taxes, not to mention increasing frustration about the speed of broadcasting roll-outs. Opening up the industry, and bringing it to maturity requires a large regulatory machinery, which can then be pared down once it has reached saturation level: the longer it takes to achieve this, the more the IBA will cost the government in the medium term.

There are three possible models with respect to funding a regulator: funding by appropriation from Parliament, funding from the licence fee and a two-tiered funding system as described above. In deciding which model to advocate, we had to take into account a number of factors, including the fiscal pressures on the government, fairness to broadcasters. Clearly, funding the IBA through a Parliamentary appropriation is not ideal, given the sort of budget cuts being experienced by all organs of state and government departments. It would not be prudent to argue for a 'ringfencing' of the IBA's finances to protect them against further cuts, as this may well be at the expense of another state institution. Also, it will be very difficult, given existing treasury rules and government's need for income, to argue simply for the IBA to be allowed to retain its licence fees. This is unfortunate, especially given that the Media Institute of Southern Africa has advised that Southern African countries setting up regulators should ensure that they are funded from licence fees, as '...such indirect funding protects regulators from leverage that a direct subsidy to the regulator would give to the government'. MISA has argued that government funding should be used only if the money collected for licence fees is not sufficient to meet the costs of the regulator: in this case the regulator should be financed directly from money voted directly by Parliament.

The third option of the two-tiered system seems the most sensible - as both the IBA and the government would gain from this system - provided the revenues generated by the commercial sector of the industry are sufficient to sustain it. This should make this option more 'winnable'. We have been advised that the industry will be able to sustain this model in the medium term.

This system would also circumvent arguments from broadcasters that the licence fee is not tied to the costs of running the regulator. For example, M-Net rebutted moves by the IBA to extend the 2% licence fee to it partly by arguing that the fee payable is not linked to the regulator's operating costs, and is therefore 'foreign to every concept of budgetary logic or discipline'. M-Net's appeal failed, but it is very possible that this argument may be made again, and legal action may even be pursued. Given that case law is developing in this area that could bear M-Net's point out, it seems wise to consider phasing in a licence system that links regulatory costs to the licence fee. A matter that would need to be cleared up, though, is that the IBA licence fee, though, is calculated on turnover, whereas the CRTC's fee is based on revenue: this is an important difference that would need to be understood and clarified.

What we find so difficult about the current arrangement is that there is another way; one that would increase both the independence and the accountability of the IBA, and this has not been explored. The specific proposal that we favour, which is based on the CRTC's licence fee structure, ties the regulator to its operating costs, therefore affording the IBA very little room for overspending. The budget would be set and debated every year in Parliament, and would therefore be subject to public scrutiny, and accounts would be audited at the end of every financial year. Given that there is very little space for overspending, the scheme largely closes the space for the kind of excesses seen in the past in the IBA.

The other problems and proposed solutions identified by the Auditor General and Public Protector could be addressed with detailed policies on aspects of the IBA's finances (where they still do not exist), and well-oiled financial management systems implemented by well trained staff. In the interim, there are a welter of civil service codes and guides that could be implemented to address these gaps, bringing the IBA into line with civil service practices, without undermining its independence. The problems are not solved by reducing the financial independence of the IBA, and cutting back their Parliamentary grant, and to propose this as the remedy is to misdiagnose the ailment of the patient; on the contrary, they are solved through greater financial independence linked to industry and regulatory costs.

There are other matters concerning independence that have not been dealt with here, and they concern the threats to independence inherent in the merger of the IBA and SATRA. These threats exist given that SATRA is less independent than the IBA, and Parliament will need to ensure that in effecting the merger, the independence of SATRA will need to be upgraded, rather than the independence of the IBA being downgraded. We would be able to supply further information on this matter if required: time has not permitted a full exploration of these issues in relation to the research brief.

Appendix 1

CPC 01/03/99 Budget briefing; SATRA; Broadcasting Bill

COMMUNICATIONS PORTFOLIO COMMITTEE
1 March 1999
BUDGET BRIEFING; BROADCASTING BILL: RECONSIDERATION

Parliamentary Monitoring Group

Budget issues

With R28.4 million we would be unable to fulfill the IBA mandate

IBA needs an additional R5 million (i.e. total of R33.4million). This is 6% more than 1998/9 financial year.

Current IBA savings is approximately R1.8 million, including projects.

Monitoring and Complaints Department (Need R 500 000)

• Effectively monitor - staff, travel and accommodation (remember Provincial offices closed)
• MCD awareness campaign cannot be funded
• Cannot monitor SABC, e-TV and M-Net effectively
• Never monitor Satellite TV and Radio

Licensing Department (Need R 600 000)

• Pay enough attention to detail in licensing matters
• Insufficient budget for s52 inquiries

PoIicy Department (Need R 200 000)

• Insufficient budget for s28 Inquiries - lack of Foreign expertise

Technical Department (Need R800 000)

• Inadequate technical input into industry
• Cannot pay ITU fees

Project Management Department (Need R1 000 000)

• Project budget needs to be cut to single venues in 4 Year Community process
• All hearings outside Gauteng on skeleton staff
• Lack of due diligence to licensing and policy making processes

Legal Department (Need R200 000)

• Legal outsourcing impaired (remember Legal Department reduced to 1 person)

HR Department (Need R400 000)

• Lower or no salary increases - skills outflow
• No training and development budget available

• Reduced foreign travel budget - Council ability to network with foreign regulators is impaired To fund 4 trips to international conferences.

• No Capex - aging Monitoring and Computer equipment not replaced. To replace computers and monitoring equipment.

• No funds to ensure Y2K compliance To fund Y2K compliance project.

Canadian Radio-Television and Telecommunications Comission Broadcasting Licence Fee Regulations

Current to: 1998-09-30

BROADCASTING ACT

BROADCASTING LICENCE FEE REGULATIONS, 1997

INTERPRETATION

1. The definitions in this section apply in these Regulations. "associated corporation" has the meaning assigned to that expression in section 256 of the Income Tax Act. (société associée)

"exemption level" means

(a) for a distribution undertaking, $175,000;
(b) for a television undertaking, $1.5 million; and
(c) for a radio undertaking,
(i) subject to subparagraph (ii),
(A) where the fee revenue of the undertaking is $2 million or less, $2 million, and
(B) where the fee revenue of the undertaking is greater than $2 million, $500,000, and
(ii) in the case of a joint radio undertaking,
(A) where the combined fee revenue of the radio undertakings is $4 million or less, $4 million, and
(B) where the combined fee revenue of the radio undertakings is greater than $4 million, $500,000. (franchise)

• any revenue received in respect of all transmitters forming part of the undertaking, where the broadcasting undertaking consists of more than one transmitter;
• the estimated annual revenue, based on the trends of the market in which the undertaking is licensed to operate, the previous financial performance of the undertaking, and, where applicable, the licensee's business plan for the first 12 months of operations, where the licensee has not filed a licence fee return covering 12 months of the most recently completed return year; and
• revenue that is derived from the sale of air time of the broadcasting undertaking by the Corporation and paid by the Corporation to the licensee.

"fiscal year" means the one-year period beginning April 1 in any year. (exercice)

"joint radio undertaking" means an AM radio undertaking and an FM radio

undertaking operated by the same licensee, or by a licensee and an associated corporation, where any part of the FM 3 mV/m contour overlaps any part of the AM daytime 15 mV/m contour. (entreprise de radio conjointe)

"licensee" means a person licensed to carry on a broadcasting undertaking. (titulaire)

"Part I licence fee" means the licence fee set out in Part I. (droits de licence de la partie I)

"Part II licence fee" means the licence fee set out in Part II. (droits de licence de la partie II)

"radio undertaking" includes a broadcasting undertaking licensed by the Commission as a (Radio) Programming Undertaking, a (Pay-Audio) Programming Undertaking or a (Radio) Network. (entreprise de radio)

"return year" means the one-year period beginning September 1 in any year. (année de rapport)

"television undertaking" includes a broadcasting undertaking licensed by the Commission as a (Television) Programming Undertaking, a (Pay-TV) Programming Undertaking, a (Satellite- to-Cable) Programming Undertaking, a (Specialty) Programming Undertaking, a (Direct-to-home pay-per-view) Programming Undertaking, a (Video-on-demand) Programming Undertaking or a (Television) Network. (entreprise de télévision)

APPLICATION

2. These Regulations apply to all licensees other than

• a radio undertaking or a television undertaking licensed by the Commission as a student broadcasting undertaking, a native broadcasting undertaking, a community broadcasting undertaking or a campus/community broadcasting undertaking;
• broadcasting undertakings carried on by the Corporation; and
• an independent corporation, as defined in the Direction to the CRTC (Ineligibility to Hold Broadcasting Licences), which derives none of its revenues from the sale of air time.

3. Every licensee shall pay annually to the Commission

• a Part I licence fee, payable 30 days after the date of the invoice from the Commission; and
• a Part II licence fee, payable on or before November 30 in each year.

LICENCE FEE RETURNS

5. On or before November 30 in each year, every licensee whose fee revenue for the most recently completed return year exceeds the exemption level shall file with the Commission a licence fee return, on the form provided by the Commission, with respect to each broadcasting undertaking that is carried on by the licensee.

6. A licence fee return filed pursuant to section 5 shall contain the information required in the form referred to in that section for the one-year period beginning September 1 of the year preceding the calendar year in which the return isrequired to be filed.

PART I

PART I LICENCE FEE

7. The components of a Part I licence fee shall consist of

• an initial amount calculated in accordance with subsection 8(1); and
• an annual adjustment amount calculated in accordance with subsection 8(2).

A is the licensee's fee revenues for the most recently completed return year, less that licensee's exemption level for that return year;
B is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that return year; and
C is the estimated total regulatory costs of the Commission for the current fiscal year as calculated in accordance with section 9.

(2) The annual adjustment amount shall be calculated by the Commission using the following formula (A / B) x D where

A is the licensee's fee revenues for the most recently completed return year, less that licensee's exemption level for that return year;
B is the aggregate fee revenues for the most recently completed return year of all licensees whose fee revenues exceed the applicable exemption levels, less the aggregate exemption level for all those licensees for that year; and
D is the difference between the estimated total regulatory costs and the actual total regulatory costs of the Commission for the fiscal year as calculated in accordance with section 9.

(3) The annual adjustment amount referred to in subsection (2) shall be charged or credited to the licensee in the following year's invoice and shall not, in any case, result in a disbursement of monies on the part of the Commission.

9. (1) The estimated total regulatory costs of the Commission for the current fiscal year is the sum of the following amounts as set out in the Commission's Expenditure Plan published in Part III of The Estimates of the Government of Canada:

• the costs of the Commission's Broadcasting Activity; and
• the share that is attributable to the Commission's Broadcasting Activity of
  • the costs of the Commission's administrative activities, and
  • the other costs that are taken into account to arrive at the net cost of the Commission's program, excluding the costs of regulating the broadcasting spectrum.

10. The Commission shall publish, each year, the estimated total regulatory costs referred to in subsection 9(1) in a public notice in the Canada Gazette, Part I.

PART II

PART II LICENCE FEE

11. A Part II licence fee shall consist of an annual licence fee, based on the fee revenue of a licensee for the return year that terminated in the current calendar year or during that portion of that return year in which the licensee held the licence to operate the undertaking, the amount of which shall be calculated as follows:

• for a distribution or a television undertaking, 1.365 per cent of the amount by which the fee revenue exceeds the applicable exemption level; and
• for a radio undertaking,

1. S. 181 (2) and (3).
2. Human Rights Commission, 'National Institutions and the Problem of Independence: Some Proposals', 14 September 1998, 3.
3. Hills, J. and Michalis, M. 'Independent Regulation and Broadcasting: Briefing Document', International Institute for Regulators in Telecommunications, 1998, 1.
4. 'Principles Relating to the Status of National Institutions - "Paris Principles"', United Nations, http://www.apf.hreoc.gov.au/un_national/ paris_principles/index.html.
5. Special Report of the Auditor General on the Financial Shortcomings in Management Measures and Financial Measures and Financial Control and the Effects thereof at the Independent Broadcasting Authority, April 1997, 11.
6. Communications Portfolio Committee, Budget Briefing, 1 March 1999, Parliamentary Monitoring Group (minutes).
7. Robinson, S. 'The Budget - A Tool for Change', IDASA Budget Information Service, April 1998, 12.
8. Coetzee, J. 'ANC Domination of Airwaves Draws Flack', Finance Week, 12 March 1999, 18.
9. Conversation with Joe Mjwara, 14 May 1999.
10. Communications Portfolio Committee, Budget Briefing.
11. Ibid.
12. Conversation with Joe Mjwara.
13. Public Notice: Proposed New Broadcasting Licence Fee Regulations, Ottawa, 22 November 1996, 2.
14. Conversation with Peter McCallum, Legal Officer, CRTC, 10 May 1998.
15. Public Notice CRC 1997 - 32, Broadcasting Licence Fee Regulations, 1997, Ottawa, 20 March 1997, 1.
16. 'Commercial Television: Revenues and Payments', Independent Television Notes, No. 4, December 1998, and 'The ITC's Financial Report and Financial Statements for the Year Ended 31 December 1998', 47.
17. Correspondence with Australian Broadcasting Authority, 10 May and 13 May, 1999.
18. Correspondence with John Barker, Regional Programme Co-ordinator (Broadcasting), MISA, April 29, 1999.
19. 'M-Net's representations concerning the proposed amendments to its broadcasting licence', 13.
20.