ICASA says 60c a likely interconnect fee

[Speedster]

(this discussion reminds me of one of our lectures in Masters. Jac Loubser (chief economist at Sanlam) was recounting a story of a job interview he conducted earlier in the day. He asked the candidate what the toughest part of economics was to him, the candidate replied "explaining economics to accountants")

 

[ShaunSA]

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

Yes this explains why after so many years it takes Guavamint intervention to drag the providers kicking and screaming to the slaughter

I think what some people are failing to realise is that ALL cellphone customers are paying the interconnect fee. And that money is going somewhere.

 

[mikef]

Then we should be in agreement here instead of arguing

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

Pitbull - please look at this article for the big picture

This quote also gives some indication of the effect of the interconnect debate:

Irnest Kaplan, MD of Kaplan Equity Analysts, says interconnect rates do have a tenuous link to consumer rates; however, it is primarily a wholesale issue. He says the concept is complicated and cannot be looked at in terms of the individual revenue made by each of the operators.

He says operators are unlikely to drop consumer rates immediately as many hope. He says, between MTN and Vodacom, the actual costs are nullified; however, they will lose revenue they gained from Telkom's contribution to their interconnect rates.

A drop would mean Telkom would pay the operators less, and Kaplan says it's more likely Telkom will begin to drop its own consumer prices.

 

[Speedster]

He says operators are unlikely to drop consumer rates immediately as many hope. He says, between MTN and Vodacom, the actual costs are nullified; however, they will lose revenue they gained from Telkom's contribution to their interconnect rates.

No, no, no... ShaunSA seems to have at least got it. We ALL pay the higher interconnect fee, that money has to go somewhere. The fact that they operators cancel their respective incomes out against one another, doesn't mean they're not making profit. It basically has the effect of increasing the call charge leading to higher profit. The net transfer is immaterial wrt to profit / loss. The only question the net transfers answer is who is making more money out of interconnect, nobody is making a loss out of interconnect - it is a physical impossibility.

 

[Pitbull]

Pitbull - please look at this article for the big picture

This quote also gives some indication of the effect of the interconnect debate:

Yes and again this is viewed by a one sided POV from Kaplan.

It's purely an educated guess, as there are more calls from landlines to cell phones than from cell phones to landlines. And Telkom has it's hand in every call that is being made in SA. So yes, then he's guess would be correct. However in the majority of these cases the interconnect rates is run separately and it does nullify itself if you look at all the roll players.

let me give you an example.

MTN pays Vodacom on interconnect rates
CellC pays MTN interconnect rates
MTN pays Telkom interconnect rates.

Now every operator would have different pay/paid figures. In the end it balances out more or less. Or the companies lose or they gain.

You can't say one cancels out the other when there is more players taking part in the same game.

Even if MTN and Vodacom = R 0.00 there is other roll players and this does change the figures ALOT.

There is 2 main reasons for this and both has been mentioned before.

1. Makes it easier for new networks to enter the market and not be held down by high interconnect rates.
2. Giving the client more bang for his buck.

The operator side will be affected little to none on this.

But the only way I can prove this to you will be with the yearly results 2011 and that will be skewed by the 2010WC. So the only true time we'll be able to see this is 2012. And I'm more than willing to bet on the same increase in Profits year on year just like the years before. With very little to no change what so ever.

There is only winners here and one loser.

 

[davemc]

Erm,

Lower interconnet fees = lower barrier to entry for competition

Simple.

 

[porchrat]

The only question the net transfers answer is who is making more money out of interconnect, nobody is making a loss out of interconnect - it is a physical impossibility.

Telkom is making a loss AFAIK.

Could be wrong, but that is what I have read.

 

[Speedster]

Telkom is making a loss AFAIK.

Could be wrong, but that is what I have read.

Not possible - the call charges they charge you and me include interconnect fees, which they then pay across to whoever terminates the call. Then Telkom receive funds for terminating calls - the profit they make on the call termination is just considerably smaller than the mobile networks do. Relative to the other operators they are worse off, but they are in no way incurring a loss due to interconnect.

 

[arcturus]

The mobile call cost is not the most pressing issue facing SA telecommunications.

I would disagree with you.

I also think you have a soft spot for the mobile operators whom in my opinion make more than enough money with their current collusion. You also need to consider 70% of our population have never used a computer.

If anything it is via the mobile operators where the most substantial difference can be made to the populace of South Africa.

 

[porchrat]

Not possible - the call charges they charge you and me include interconnect fees, which they then pay across to whoever terminates the call. Then Telkom receive funds for terminating calls - the profit they make on the call termination is just considerably smaller than the mobile networks do. Relative to the other operators they are worse off, but they are in no way incurring a loss due to interconnect.

That makes sense. Explains why it is so expensive to call a cell number from a landline. Well said, I should have considered that.

 

[mikef]

I would disagree with you.

I also think you have a soft spot for the mobile operators whom in my opinion make more than enough money with their current collusion. You also need to consider 70% of our population have never used a computer.

If anything it is via the mobile operators where the most substantial difference can be made to the populace of South Africa.

Naturally you have the right to disagree

You are however mistaken when you think I have a soft spot for the mobile operators - I in fact detest a lot of their business practices which in my opinion are only one step away from fraud. I also am not commenting on whether or not their profits are excessive as I honestly do not know not having studied their financial statements.

I do consider that 70% of our population have never used a computer and that to me is why it is so urgent to change this position. And in fact I also agree that it is via the mobile operators where the most substantial difference to our population can be made - I am just not sure that reducing the cost of voice calls at the expense of other initiatives is the best way of achieving this difference.

 

[JustinB]

Yes and again this is viewed by a one sided POV from Kaplan.

It's purely an educated guess, as there are more calls from landlines to cell phones than from cell phones to landlines. And Telkom has it's hand in every call that is being made in SA. So yes, then he's guess would be correct. However in the majority of these cases the interconnect rates is run separately and it does nullify itself if you look at all the roll players.

let me give you an example.

MTN pays Vodacom on interconnect rates
CellC pays MTN interconnect rates
MTN pays Telkom interconnect rates.

Now every operator would have different pay/paid figures. In the end it balances out more or less. Or the companies lose or they gain.

You can't say one cancels out the other when there is more players taking part in the same game.

Even if MTN and Vodacom = R 0.00 there is other roll players and this does change the figures ALOT.

There is 2 main reasons for this and both has been mentioned before.

1. Makes it easier for new networks to enter the market and not be held down by high interconnect rates.
2. Giving the client more bang for his buck.

The operator side will be affected little to none on this.

But the only way I can prove this to you will be with the yearly results 2011 and that will be skewed by the 2010WC. So the only true time we'll be able to see this is 2012. And I'm more than willing to bet on the same increase in Profits year on year just like the years before. With very little to no change what so ever.

There is only winners here and one loser.

Are you assuming that the reduction in retail prices leads to more consumption? Actually, even if you are, I'm willing to take this bet.

You're viewing this in isolation, saying I pay you Rx, you pay me Rx, zero sum game irrespective of whether Rx is R20 or R50. This is not only a 2 legged transaction though, because the consumer is the one who is injecting the cash into the system. If interconnect comes down, leading to lower costs, leading to lower prices, then profits have to come down ceteris parabis.

Its fairly well known that mass market cell phone users have multiple sim cards to obtain the benefit of on-net costs rather than pay off-net costs. If interconnect does come down, the prevalence of this has to decrease, which then must also have an impact on profits.

I would imagine there'd be 2 losers - MTN and Voda. Everyone else will be winners.