Former Vodacom CEO speaks out on lower interconnect rates

High cellular interconnect rates – R 1.25 during peak times and R 0.77 during off-peak times – are often fingered as one of the major reasons for the high telephony costs in South Africa.  High interconnect rates are essentially creating an artificial price floor for calls to mobile phones.

Alan Knott-Craig, former Vodacom CEO and one of the ‘fathers’ of cellular services in South Africa, is an unexpected supporter of lower wholesale termination rates.  Knott-Craig told delegates at Internetix that he believes that a drop in interconnect rates is one of the ways in which the local telecoms market can be made more competitive and in turn help lower costs to consumers.  Knott-Craig further advocated a symmetrical interconnect rate, replacing the current asymmetrical rate.

Many people accused Knott-Craig of being a hypocrite, happily cashing in on high interconnect rates while heading up Vodacom and only fighting for lower rates after he left the cellular provider.  The truth may however look a bit different.

MyBroadband caught up with Knott-Craig to gain clarity of this apparent change of heart. 

Why did you not do anything about the high interconnect rates while you were in charge at Vodacom (or did you)?  Why did you change your mind/position on interconnect rates?

I have never changed my mind on interconnect rates. My position has been the same since 1993. Mobile terminating rates should be based on cost plus a fair profit. It should be remembered that your mobile terminating rate does not translate into profit when they are symmetrical, which they have always been between mobile operators (with the exception of Telkom).

This is obviously so since what you get mostly gets cancelled out by what you pay out. So the net is the only real income, and that has been not only relatively small, but has fluctuated between mobile operators over the years. The rate between Telkom and the mobile operators has not been symmetrical, and there the mobile operators gained an unexpected advantage, especially in the first ten years, which helped them considerably. But even that has dwindled over recent years to make it less relevant.

Nonetheless Telkom charged the Mobile operators the same rate which they charged their own customers. They could hardly charge more.  On-net mobile rates have not been effected by the interconnect rate, since it was never a cost factor in these tariffs. 

No operator could unilaterally drop its terminating rate without the other operator also dropping their rate, unless they wanted to recklessly damage the financial health of their company.

It had to be an industry initiative, and one that was led by an independent third party, i.e. the regulator, which was the point of my previous comments. The regulator in every country in the world, including the countries in Africa where we operate, has always intervened as soon as the market stabilised. But not here. Hence my criticism of our regulator in this regard.

My criticism was also based on the fact that since our regulator has the exact costs for terminating a call by mobile operators (which is a condition of their licences) he is in a far better position than many regulators in ruling on this issue.

And the decision should be based on fact and not emotion. And I engaged the regulator in a robust fashion on many occassions on many issues. On interconnect, he was simply not interested in the issue, as I recall.

And whilst I am not free to go into the detail, I did very aggressively try to reduce retail tariffs to customers which were dependent on interconnect during my tenure at Vodacom. Unsuccessfully. But I did reduce on-net tariffs which were not dependent on the interconnect rate. I partly did this, as did most other operators, to save on interconnect costs which came into play in off-net traffic.

Reducing interconnect per se does not result in a reduction of retail tariffs, although it should result in the reduction of some. It remains for the operator to voluntarily reduce its retail tariffs if interconnect reduces, or for the regulator to broker such a deal.

It is the latter which I have being trying to promote. It has no huge impact on an operator’s financial results, since we are talking of a net outcome which usually does not effect margins much. And the experience is if tariffs reduce, customers simply speak more, making up the revenue volumes lost.

One further point, when I ran Vodacom, my primary responsibility for running a successful business was to my shareholders, as was my duty by law. The South African government was an indirect shareholder, but I was not a shareholder in Vodacom.

I worked for a salary and a bonus based on performance. My shareholders dictated the degree of freedom I had. Why do I say this. Because I had no personal huge wealth agenda, as some suggest, and still don’t.

Why did you defend Ivy Matsepe-Casaburri in a recent column?  http://mybroadband.co.za/news/Telecoms/6195.html

Why did I defend Ivy? Well she has passed on now, so I am pleased if my comments gave her some degree of happiness before she died. Although I was often on the wrong side of her sharp tongue, and she was often critical of me, we developed a good relationship over the years.

I also felt that she took the blame for some wrong things in our industry which were not of her making. And I know that she wanted to do many positive things which she was ultimately prevented from doing. None of us is perfect, and I am not about to malign her now.

One thing I do know, is that this country grew its number of telephones by more than 30 million during her term. And I feel that she deserves some credit for that. My comments were never meant to defend her (she could quite capably do that herself), they were merely designed to highlight that it was, at least in my view (for what that’s worth) not all doom and gloom during her reign.

Some people feel that you are positioning yourself to become ICASA Chair or another high ranking Government position.  Can you please comment on this?

I am well and enjoying being a pensioner. Why anyone would think that I would want to go back to tackling the road between Pretoria and Joburg to work at ICASA, is beyond me. And I know that folk think I want to become ICASA Chairman or something. No chance.

I might have offered to provide them with some assistance, assuming that they needed any, but I think that window of opportunity has closed.

I am quite happy relaxing with my wildlife photography and doing some writing. My health is improving and I am enjoying more time with my granddaughter.

I suppose I can choose not to write about telecommunications, but I quite enjoy the freedom to write what I want to after many years of corporate life. And it may come as a surprise to some, but I do also have a private opinion, which is not always appropriate to voice when in the corporate world. I have been out of that world for 1 year now. Feels like ages, but I don’t miss one second.

Alan Knott-Craig & interconnect rates – comments and views