Call costs won’t necessarily drop, warn experts
The Department of Communications (DoC), the Independent Communications Authority of South Africa (ICASA) and Parliament are all putting pressure on the cellular providers to cut interconnect rates with the aim of reducing mobile call costs.
Communications Minister Siphiwe Nyanda ordered ICASA on Tuesday to take urgent action to reduce cellphone interconnection rates by the end of November.
Nyanda directed ICASA in terms of the Electronic Communications Act (ECA) to prescribe the regulations in terms of the Act – take into consideration the benchmarking study on the cost to communicate – and lower the interconnection rates, specifically the mobile termination rate, to a cost-based rate on or before November 30, 2009.
ICASA Chairman Paris Mashile also lashed out at the cellular operators, saying that the cellular operators have until the end of next week to come up with a workable plan to cut interconnect fees – or face severe action.
Vodacom however warned that an arbitrary and ill-considered intervention to reduce cellphone interconnection rates could have unintended consequences, like the disconnection of marginal cellphone customers, higher access charges, less discounts for on-net calls, higher SMS and data charges, and increased retail voice charges for prepaid customers.
This view is supported by Du Pont Telecoms CEO Graeme Victor who recently warned that a reduction in the mobile wholesale terminate rate will not do much to reduce the cost of mobile calls. Victor said that prepaid cellular customers may even find themselves paying more for calls.
“A drop in interconnect rates does not necessarily lead to a reduction in retail call charges,” said Victor. “In Israel, a government-led cut in interconnect rates actually resulted in a rise in overall call costs as operators scrambled to make up for lost revenues. There is no reason why the same could not happen here.”
Triple-W Strategy analyst Steven Ambrose agrees, saying that it is important that there will, in all likelihood, not be an automatic cut in cellular tariffs that is equivalent to the cut in interconnect rates. “There will not be immediate cost savings from the big networks – the price reductions will start from the smaller players who will be more competitive and flexible in their pricing, and this competition will result in a overall re balancing of cellular costs over the next year.”
November deadline realistic?
Questions have been raised about the 30 November 2009 deadline, especially when the processes required by the ECA to create regulations can be tedious and time consuming. ICASA is also not known as the most efficient organization around.
Triple-W Strategy analyst Steven Ambrose said that in the normal course ICASA has to abide by all the rules and regulations of the ECA. “We have seen in the past that the process can be time consuming. In this instance ICASA will facilitate a bilateral agreement amongst the parties as the political pressure and potential unwanted intervention by government will facilitate a pragmatic approach from the networks,” said Ambrose.
Ambrose is however confident that a November 30 deadline is achievable if the interconnect rate cut is based on a bilateral agreement by the operators facilitated by ICASA. This view is echoed by World Wide Worx MD Arthur Goldstuck who says that ICASA “can simply declare a new interconnect rate.”
“We have been calling on them to do so since 2005. The legal arguments against doing so do no hold water, as neither ICASA nor the networks entered a public process for increasing the interconnect rate, and it occurred entirely invisibly to the public,” says Goldstuck.
Goldstuck however warns that while the deadline is realistic, it is also dangerous: “The November 30 deadline gives the networks a very significant excuse for not being able to meet the time limit. It is also dangerous from the DoC point of view, as it does not give them the chance to put in place a clear structure and process by which prices must be shown to have been cut.”
Operators to fight a reduction?
With billions of Rands in interconnect fees on the line, some observers expect Vodacom and MTN to consider legal action if the suggested wholesale termination rates do not suit them.
Ambrose however does not expect the cellular providers to fight interconnect rate cuts. “The operators will not fight this battle and will reduce interconnect rates to the anticipated 60c over the next year,” said Ambrose.
Goldstuck says he does not expect a significant fight on the quantum of the initial cut. “30c was the bare minimum the networks themselves are likely to have proposed. However, the second tranche of 30c will probably meet resistance, and may well form the basis for a negotiated reduction that allows the networks to phase it in over a much longer period,” said Goldstuck.
“Then there is a third tranche, which is the additional fat built into the interconnect and which the DoC looks like leaving on the table, i.e. an additional 30c charge that cannot be shown to be justified. If the networks play ball with the first two tranches, they will probably be allowed to keep the third tranche. If they fight the first two, they could get all three taken away. They have to play a careful game in terms of flexing their economic muscle against the economic needs of their consumers.”
Interconnect rates and call costs – comments and views
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