ICASA says 60c a likely interconnect fee

Pitbull said:
Not true.

End of the month or whenever all networks will meet and balance their Interconnect sheets. In some cases networks make a profit in some cases they break even meaning no one pays no one. In other cases that network who made a profit the last time round now needs to pay the other network and so forth.

That being said let's use another example:

I have R 300 pre-paid airtime. I will still phone and finish up that R 300 pre-paid airtime no matter what the reduced rates are. I'll just be able to use it more frequently. It will still be used and the netwrok will make a profit on that. With or without the reduced rate.
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Pitbull i do not know what MTN's average income per call from their subscribers is - let us assume for the moment that it is R3. Assuming this gets decreased to R2.70 I challenge you to calculate the impact on MTN's revenue and then find the cost in MTN's financial statements that will have a corresponding decrease.
 
Speedster said:
Guys mikef and I have been having this argument over a couple of threads this past week. He seems to think the operators are entitled to profits from interconnect fees without understanding that their profit is already built into the base fee (without interconnect). Interconnect is a BONUS they've been receiving up until now and parliament has finally decided to cut it out.
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Let us not mix issues - You are in fact agreeing with me by confirming that the network operators will lose profit (the so called bonus) - Pitbull is saying it will not effect them:)
 
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mikef said:
Pitbull i do not know what MTN's average income per call from their subscribers is - let us assume for the moment that it is R3. Assuming this gets decreased to R2.70 I challenge you to calculate the impact on MTN's revenue and then find the cost in MTN's financial statements that will have a corresponding decrease.
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Profits are not calculated on interconnect fee's in actual fact it's an expense of which does yield some Bonuses from time to time. It's not part of the Profit forecasting what so ever.

It's not a given that any network makes a profit at any given time on interconnect rates. It's a variable which is not included when it comes to profits. If it yields a return YIPEE if it doesn't tough cookie. Now all it does is cut the rate MTN will have to fork out or the fee MTN gets if they are on top of the interconnect list for any given month. Nothing gained nothing lost.

In actual fact it cuts the expenses at the same time. The profit margin on calls stay exactly the same as before.
 
mikef said:
Let us not mix issues - You are in fact agreeing with me by confirming that the network operators will lose profit (the so called bonus) - Pitbull is saying it will not effect them:)
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I never said that.

I am saying it's an expense and a bonus from time to time. This doesn't affect the profit magins as profit is the part made above all expenses and interconnect rates is an expense ;)
 
mikef said:
Pitbull i do not know what MTN's average income per call from their subscribers is - let us assume for the moment that it is R3. Assuming this gets decreased to R2.70 I challenge you to calculate the impact on MTN's revenue and then find the cost in MTN's financial statements that will have a corresponding decrease.
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You are missing the point slightly.

Break it down a little

Lets say that R 3 call has a R 1.20 interconnect fee. MTN to Vodacom, this means that MTN makes R 1.80 profit. If the interconnect rate is reduced to R 0.60 it means the call is now charged at R 2.40 and MTN still makes R 1.80.

Now take millions of calls accross all networks for a month.

End of this month Vodacom and MTN meet and they balance their interconnect rates. MTN owes Vodacom R 30mil and Vodacom owes MTN R 35mil

This means MTN then still made a bonus of R 5mil from the interconnect rates. No network in the world will budget on interconnect rates as it's a variable and rated as a expense.
 
Pitbull said:
Profits are not calculated on interconnect fee's in actual fact it's an expense of which does yield some Bonuses from time to time. It's not part of the Profit forecasting what so ever.

It's not a given that any network makes a profit at any given time on interconnect rates. It's a variable which is not included when it comes to profits. If it yields a return YIPEE if it doesn't tough cookie. Now all it does is cut the rate MTN will have to fork out or the fee MTN gets if they are on top of the interconnect list for any given month. Nothing gained nothing lost.

In actual fact it cuts the expenses at the same time. The profit margin on calls stay exactly the same as before.
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Pitbull lets try again - I am not disputing that changing the interconnect rate will have little effect on an operators profit. What I am saying is that reducing the retail rate the operators charge their subscribers will have a direct impact on profits. As the interconnect fees in effect cancel out any saving from the reduction will not compensate the operator for the decrease in retail rates.
 
mikef said:
Pitbull lets try again - I am not disputing that changing the interconnect rate will have little effect on an operators profit. What I am saying is that reducing the retail rate the operators charge their subscribers will have a direct impact on profits. As the interconnect fees in effect cancel out any saving from the reduction will not compensate the operator for the decrease in retail rates.
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Read my second post.
 
Vodacom interconnection revenue, which included income from South Africa's third largest mobile phone operator Cell C for national roaming services, rose by 8.6 percent to 8.63 billion rand ($1.16 billion) for the year to end-March.


MTN, South Africa's second largest mobile operator and Africa's biggest, raised its interconnect revenue to 6.9 billion rand in the year to December compared to 6.3 billion in 2007.
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http://www.busrep.co.za/index.php?fArticleId=5200874
I'd guess that only Vodacom is making a profit, which is why they're so against the fee's dropping. Telkom (no longer earning profit from Vodacom) is supporting lower charges, as is CellC. I haven't seen MTN's opinion mentioned anywhere?
 
mikef said:
Pitbull lets try again - I am not disputing that changing the interconnect rate will have little effect on an operators profit. What I am saying is that reducing the retail rate the operators charge their subscribers will have a direct impact on profits. As the interconnect fees in effect cancel out any saving from the reduction will not compensate the operator for the decrease in retail rates.
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Depends on which side of the fence you are sitting.

If MTN was always on the paying side of interconnect rates, I would assume this is in actual fact a reduction in expenses ;) In all honesty, I think the biggest if not the only loser in this is the common denominator in all these networks. Just an educated guess though....
 
Pitbull said:
You are missing the point slightly.

Break it down a little

Lets say that R 3 call has a R 1.20 interconnect fee. MTN to Vodacom, this means that MTN makes R 1.80 profit. If the interconnect rate is reduced to R 0.60 it means the call is now charged at R 2.40 and MTN still makes R 1.80.

Now take millions of calls accross all networks for a month.

End of this month Vodacom and MTN meet and they balance their interconnect rates. MTN owes Vodacom R 30mil and Vodacom owes MTN R 35mil

This means MTN then still made a bonus of R 5mil from the interconnect rates. No network in the world will budget on interconnect rates as it's a variable and rated as a expense.
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Not true - that explanation assumes the R1.20 was a cost to MTN. However as you have also pointed out it was contra-ed by a similar charge to VC by MTN for terminating a MTN call on VC's network. Which in effect means the revenue to by MTN was R3 - not R1.80. If MTN reduced the retail rate to R2.40 this would decrease their income by the 60c reduction.
 
Interconnect charges cancelling out amongst operators doesn't mean operators don't generate profit from interconnect charges. Don't be confused by the fact that the net transfer of funds is close to 0. The fact that they write their accounts off against one another simply has the effect of raising the effective call charge (the money the put in their back pockets).

mikef - the whole point is to decrease the exorbitant profits these firms have been generating due to the fact that they are a licensed oligopoly, and not a free, fully competitive market.
 
mikef said:
Not true - that explanation assumes the R1.20 was a cost to MTN. However as you have also pointed out it was contra-ed by a similar charge to VC by MTN for terminating a MTN call on VC's network. Which in effect means the revenue to by MTN was R3 - not R1.80. If MTN reduced the retail rate to R2.40 this would decrease their income by the 60c reduction.
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I think we need to both talk about the same thing first.

You do know the difference between revenue and profit right?
 
Speedster said:
mikef - the whole point is to decrease the exorbitant profits these firms have been generating due to the fact that they are a licensed oligopoly, and not a free, fully competitive market.
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So the answer is to regulate prices:(
 
Furthermore interconnect rates serve as a subsidy for each operator, based on the percentage of calls that terminate on their network. This is why Vodacom is a net receiver of interconnect funds - to the tune of a couple of billion rand. It is a levelling out of the charged interconnect fees according to size, thus the other parties need to pay funds across to Vodacom.

A new entrant would receive substantially less than the existing firms and therefore be at significant disadvantage in the industry - hence the competition argument involved.
 
Thing is this, and I have seen plenty of people pointing fingers and say "burn you bastards burn"

This is not the effect ICASA has in mind not the effect it will have in general.

The point of this excersize is to give the end user (The client) more value for their money. This will have little to know effect on the providers. Yes there is a revenue reduction which doesn't affect the projected profits. In some cases it actually increases profits as the expense is less ;)
 
Pitbull said:
I think we need to both talk about the same thing first.

You do know the difference between revenue and profit right?
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Having run my own accounting and audit practice for over twenty years I should:)
 
mikef said:
So the answer is to regulate prices:(
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Exactly! And that is the job of the Independant Communications Authority of South Africa. And that is exactly what they are doing, regulating the price charged to terminate a call on another network.
 
mikef said:
Having run my own accounting and audit practice for over twenty years I should:)
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Then we should be in agreement here instead of arguing :o

You are looking at this from a gain only POV and not in the expense POV as it would turn out in all but one of these providers. This is in actual fact a reduction in overheads for 95% of the providers in this equation
 
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