The true cost of an off-net mobile call

Cell C CEO shows how challenging it is to further cut costs without changes to the current MTR regime

January 31, 2013

Cell C CEO Alan Knott-Craig recently said that Cell C only makes 4.6c on an off-net mobile call, which the company must use to fund its network, billing systems, roaming and other charges.

In a presentation in October 2012, Knott-Craig said that mobile termination rates (MTR) in South Africa must drop to 15c per minute.

Knott-Craig also argued that there should be significant and sustained MTR asymmetry to benefit new market entrants and boost competition in South Africa.

The Cell C CEO said that the incumbent operators – Vodacom and MTN – insulate themselves from effective competition through on-net tariffs that effectively discriminate against calling to the challenger networks.

Knott-Craig highlighted calling promotions such as MTN’s Mahala and Vodacom’s Nightshift which offer large discounts to on-net calls (hence Vodacom-to-Vodacom or MTN-to-MTN).

“The significance of off-net traffic is disproportionately greater for the challengers than for the incumbents,” said Knott-Craig.

Off-net and On-net voice traffic comparison

Lower MTRs needed to reduce prices further

Knott-Craig showed that Cell C only makes 4.6c on a 1 minute call (priced at 99c per minute) to another mobile operator during peak times.

The majority of the money of a 99c peak time call (56c) goes to the mobile operator which is called – hence the MTR.

Knott-Craig pointed out that this minute portion of revenue must fund network costs, national roaming, admin costs, funding and the like.

Peak off-net mobile call revenue split

Knott-Craig’s solution to rectify this situation is simple: lower mobile termination rates to 15%, have a significant (400%) and sustained MTR asymmetry and introduce regulation to prohibit on-net / off-net price discrimination (“flat rates”).