Is Nyanda too optimistic?

The Communications Minister may well confuse interconnect rate cuts with actual retail price reductions

Communications Minister Siphiwe Nyanda last week announced that Vodacom, Cell C and MTN had agreed to cut the peak mobile interconnect rate by 36c - from R1.25 per minute to 89c per minute. The off-peak mobile termination rate of 77c per minute will remain unchanged.  For Vodacom and Cell C this cut will be implemented on the 1st of February 2010 while MTN has agreed to lower its peak interconnect fee by the 1st of March 2010.

This agreement has been welcomed as a first step to ensure far lower interconnect rates, but most commentators feel that far more must be done.  “We welcome any reduction in interconnect rates. Clearly we believe that this is not far enough, but as an opening gambit we'll take it,” said John Holdsworth, CEO of ECN Telecoms.

“It is clear to me that the minister has been lobbied. Our view is that these networks - and ICASA agrees with us - have significant market power on their networks. Therefore the fee should be regulated and we needn't leave it up to the networks to decide what the interconnect rate is. What we want to see is ICASA step in and reduce these rates to cost,” added Holdsworth.

Skepticism still remains as to whether consumers will see significant retail price cuts related to the lower interconnect rates.  Juli Kilian, COPE MP on the Communication Portfolio Committee, says that Nyanda’s ‘early Christmas box’ is an empty box:  “In fact, it could have the opposite effect since it could derail statutory processes which ICASA has commenced to provide for greater competition in the mobile industry.”

Kilian criticised the Minister for creating expectations that mobile call rates will be reduced to 89c per minute.  “The Minister should know that there is no correlation between interconnect rates and call rates.  Furthermore, mobile operators say they did not agree to lower call rates, other than their normal Christmas packages. This could mean that the Minister misled Parliament,” she said.

Holdsworth is also not confident that Vodacom, MTN and Cell C will cut prices.  When asked whether the reduction in interconnect tariffs are likely to do anything to retail pricing, the ECN CEO said “I don't think so. I think the mobile networks are very concerned about a triple-whammy. What I mean by that is that clearly a reduction in interconnect rates means a reduction in that revenue line, that interconnect revenue.”

“I think they are very concerned about bringing in new competitors who are going to discount retail tariffs, and they themselves are also very concerned about having to reduce their retail tariff. I think they'd like to do this serially, and not have all three of these things arrive at the same time,” said Holdsworth.

Kilian added that the announcement by the Minister has absolutely no statutory impact, and that only ICASA can approve interconnect agreements and regulate call rates. “The Minister’s involvement in this process smacks of political opportunism. After years of neglect of the communication sector by government the Minister wants to claim victory of processes initiated by the PC on Communication.”

“The independent regulator ICASA should monitor interconnect rates – if they fail to do their job, they should be removed from office,“ Kilian added.  “His political intervention sets a dangerous precedent – it effectively means we have regulation by political intervention.”

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