Vodacom CEO speaks out about lower interconnect rates

Rudolph Muller

Rudolph Muller is the editor at MyBroadband and covers telecoms and broadband news. Rudolph comes from an academic background, but left the University of...

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High interconnect rates from the mobile operators have dominated headlines over the last week.  Vodacom and MTN – which stand to lose the most from lower interconnect prices – have been rather quiet on the issue of reducing wholesale termination rates.

Parliament’s Portfolio Committee on Communications has recently indicated that it will propose that mobile and telecoms operators drop the interconnection rates with effect from 1 November 2009 to 60 cents per minute during peak times.  It further wants interconnection rates to be reduced by 15 cents annually on 1 November for each successive year until 2012.

This has now added political will to the issue and added pressure on the Independent Communications Authority of South Africa (ICASA) to produce results when it comes to lower interconnect rates.

Vodacom has now broken its silence on the issue with CEO Pieter Uys speaking out on the issue of lower interconnect rates.  For the sake of accuracy we bring you his full reply:

The current debate on interconnection rates would seem to suggest that Vodacom is opposed to see these ICASA approved interconnection rates reduced.

Let me clearly say that Vodacom is not opposed to the reduction of interconnection rates. Let me also be clear that, in line with international best practice, interconnection rates (or mobile terminating rates as they are more properly referred to) should be based on the demonstrable cost of terminating another party’s call plus a fair profit. The only issue is therefore how this should be done.

In the first place mobile terminating rates cannot unilaterally be reduced by Vodacom since we would irreparably damage our business were other operators not to follow with a similar reduction. The reduction of mobile terminating rates must therefore be orchestrated by ICASA, which derives its authority to intervene in cases of market failure from the Electronic Communications Act, Act 36 of 2005 (the ECA). Last week they have indeed initiated such talks, and strong progress is being made.

Secondly the COA/CAM (which is a set of accounts which sets out our costs) has been submitted to ICASA in order for them to ascertain our cost structure, including termination costs. COA/CAM is the only tool available to ICASA at least until its investigation is concluded under Chapter 10 of the ECA, which can be utilized to objectively determine a fair and reasonable interconnection rate.

Should ICASA require any further information, we will, as always, be glad to assist. There is no point in speculating what the mobile terminating rate should be; the application of the cost plus fair profit principle by ICASA will provide the answer.

Thirdly, ICASA would have to apply their minds in such a manner that they do not financially damage any operator by their ruling, since this would simply reduce the extent of competition in the industry and discourage investment in telecommunications infrastructure which in the context of South Africa generally benefits the poor and marginalized as borne out by the 110% mobile telephony penetration level achieved since the advent of mobile 15 years ago.

International best practice has been to reduce mobile terminating rates over a period of time to avoid business model shocks and prevent the scramble by operators for lucrative customers at the expense of the poor and marginalized communities. ICASA would have to determine such a glide path.

Contrary to generally expressed opinions, the mobile terminating rate only affects the price of off-net calls, i.e. calls between Vodacom, MTN, Cell C and Telkom. Mobile terminating rates do not form a cost element in on-net calls, i.e. a Vodacom to Vodacom call.

The biggest single operating cost component for every mobile call is the cost of transmission lines which mobile operators have been obliged to hire from Telkom over the past years. This cost must also be taken into account when interconnect rates with Telkom are renegotiated.

Vodacom has always and is always keen to engage the policy makers and Regulator on the interconnection debate in South Africa.

Lower interconnect rates and Vodacom – comments and views