South Africa’s telecommunications industry is facing a fundamental crisis in how the country funds its push to bridge the digital divide, with senior leaders warning that the system designed to connect underserved communities has become little more than a hidden tax on service providers. The connectivity levy — ostensibly ring-fenced for rural broadband rollout and universal service projects — is increasingly being diverted into the state’s general coffers, leaving critical infrastructure projects chronically underfunded.
Every licensed telecommunications operator in South Africa is required to contribute 0.2% of their licensed revenue into the Universal Service and Access Fund, administered by the Universal Service and Access Agency of South Africa (Usaasa). This mechanism was meant to be a targeted, purpose-driven pool of capital designed specifically to close South Africa’s persistent connectivity gaps. Instead, as our sources indicate, the money is being collected by Icasa, shuffled to national treasury, and then only partially allocated back through the standard budgeting process—a fundamental structural breakdown that has gutted the original intent of the connectivity levy.
“That is something which needs to be looked at because it becomes more of a general tax and not a specific contribution for a specific purpose,” explained Dominic Cull, regulatory advisor to the Internet Service Providers’ Association (Ispa), when speaking with journalists this week. The distinction matters enormously. When contributions are genuinely ring-fenced, operators know exactly where their money goes. When they’re absorbed into consolidated revenue, there’s no accountability, no certainty, and no incentive for the government to treat them as anything other than another funding source to plug budgetary shortfalls.
The breakdown in South Africa’s connectivity levy framework is deeper than just budget mechanics
The structural problems are compounded by what Cull describes as sustained performance failures at Usaasa itself. The agency was tasked decades ago with developing clear definitions of what “universal service” actually means in the South African context, and who qualifies as “needy persons” eligible for subsidised access. These definitions still do not exist. In a country where millions remain offline, the absence of these foundational policy instruments is nothing short of catastrophic. “There has been dysfunction that has resulted in real harm to South Africa’s goal of connecting underserved communities,” Cull said bluntly.
Nomvuyiso Batyi, chief executive of the Association of Communications & Technology (ACT), a telecoms lobby group, acknowledged that Usaasa’s mandate under the Electronic Communications Act is genuinely compelling—expanding broadband access and supporting universal service objectives remain urgent national priorities. However, she noted that delivery has been “uneven and constrained by institutional uncertainty, capacity limits and ongoing restructuring.” Audit outcomes have technically improved from a disclaimer to an unqualified opinion, but Batyi cautioned that this reflects compliance improvements rather than actual developmental impact on the ground.
On operational delivery, the picture is mixed. Usaasa has achieved tangible wins through targeted broadband rollouts, public Wi-Fi deployments, and digital skills programmes across multiple provinces. Yet the scale remains stubbornly modest relative to South Africa’s actual connectivity gaps. When you consider that roughly 98% of South Africans have access to 4G coverage according to recent Development Bank of Southern Africa data, but actual usage lags dramatically, it becomes clear the problem isn’t just infrastructure—it’s affordability, device availability, and sustained service reliability.
Batyi drew sharp comparisons with international models that function more effectively. The US Federal Communications Commission’s Universal Service Fund and the UK’s Building Digital UK programme both demonstrate stronger institutional continuity, more cohesive execution strategies, and far clearer alignment between funding inputs and measurable outcomes. South Africa’s framework, by contrast, reflects fragmented execution and reporting mechanisms that focus on activity metrics rather than real developmental impact—whether people are actually using deployed networks, whether services are reliable, whether they’re affordable, and whether infrastructure is sustainable.
The government has begun acknowledging these shortcomings. The Department of Communications and Digital Technologies intends to subsume Usaasa into a new Digital Development Challenge Fund (DDCF), with legislation expected for public comment later this year. The 2025/2026 budget allocation gives a sense of current spending: R268-million for Usaasa’s operations, and R173-million directly to the Universal Service and Access Fund for digital inclusion initiatives in unconnected areas. These figures, whilst not trivial, are dwarfed by the scale of infrastructure investment needed nationwide.
Cull and others have suggested a fundamental rethink of how the connectivity levy is deployed. One option gaining traction involves device and data subsidies for indigent South Africans—essentially recognising that the barrier to connectivity isn’t always coverage, but the ability to afford handsets and data bundles. This would require rewiring how Usaasa allocates funds, shifting from infrastructure-focused grants to demand-side support mechanisms that place money directly in users’ hands.
What emerges from interviews with industry figures is broad agreement that piecemeal reforms won’t suffice. What South Africa needs is substantial institutional and legal reform—updated definitions of universal service, proper coverage mapping by Icasa, and genuine implementation of powers already granted under the Electronic Communications Act. The current framework, however well-intentioned when drafted, has become a liability to the nation’s digital development goals, and continuing to patch it rather than rebuild it is a luxury South Africa can no longer afford.