The Independent Communications Authority of SA (Icasa) is long overdue on its proposal to force network operators to lower interconnection rates.
In 2005, research and consulting firm Genesis released a report with recommendations that Icasa immediately undertake a market definition and market power study so that major operators could be declared and their prices regulated.
Genesis said at the time that interconnection fees seemed to be priced above cost. Almost two years later, the regulator released a report declaring that MTN, Telkom and Vodacom had significant market power in the call termination market and proposing that the companies charge a cost-based interconnection rate.
Interconnection rates, or termination rates, are fees that cellular network and fixed-line telephone operators charge each other to connect calls to one another.
The rates have increased by more than 500 percent over the past 12 years, to R1.25 a call. The cost of fixed-telephone line interconnection rose by 47 percent from 21c in 2004 to 31c in 2005.
High interconnection rates meant that major retailers were able to influence retail prices – the fees that consumers pay when making a call.
If interconnection rates are kept at a lower rate, this will result in lower cellular retail prices.
According to Icasa, as Telkom’s interconnection fee did not rise as much as the that of the cellular operators, the operators were able to exert countervailing pressure on Telkom.
But had Telkom’s rate increased in line with that of the cellular operators, it would have attracted significant regulatory disapproval, Icasa said.
Cell C’s entry did little to reverse the sharp rise in interconnection, which had occurred immediately prior to its market entry, the regulator said.
Currently Telkom’s tariffs and those of cellular operators are priced in line with the benchmark consumer price index (CPI). Fixed-line telephone tariffs cannot be greater than the percentage year-on-year increase in the CPI. However, Icasa said the CPI benchmark was inadequate.
The CPI criterion serves as a major decision-making tool, even though certain considerations, such as the economic and social impact associated with tariff increases, are taken into account in the analysis of tariff applications.
To determine the cost-based rate, Icasa will study the cellular operators’ charts of accounts and cost allocation manuals, which will enable the regulator to assist customers in understanding what it costs network operators to produce a particular service and how that relates to the prices they are paying.
Based on the findings from the charts of accounts and cost allocation manuals, which will also be used in parallel with the CPI rate, Icasa might decide on a once-off price reduction.
If Icasa has its way, MTN and Vodacom stand to lose R2.23 billion of combined revenue, as interconnection rates contributed nearly 5 percent to their turnover. This would be the case if the regulator finds that it costs the two companies less to offer this service than what they currently charge.
Although interconnection rates were not a significant contributor to the companies’ revenues, it did boost their cash flow.