Will connection fee regulation lower prices?
This week, the Independent Communications Authority of SA (Icasa) is assessing whether cutting fees that rival operators charge each other for their facilities would benefit consumers and increase competition.
Of course it would, say the Communications Users Association of SA and networking company Internet Solutions. No, it would not, say Telkom, MTN and Vodacom.
Other service providers and analysts are equally divided, ensuring there is no easy answer.
A key area is the fees charged for a customer of one network to connect to a user on another. Interconnection fees also affect companies that provide internet access and data services, as they rely on Telkom or the mobile operators to route their traffic.
Icasa says the operators should charge according to the actual cost of routing traffic from one network to another.
What has prompted the proposal is a 635% spiralling of these fees over a decade. The operators are probably recovering more than they should be, says Icasa councillor Tracy Cohen.
The cellular operators charge R1,25 to accept a call from a rival network – a fee passed straight to the consumer. The cost of linking a cellular call to a fixed line is cheaper – Telkom charges a more modest 31c in peak periods.
Research from business planning consultancy Balancing Act shows that interconnection fees cost a consumer 66% of a fixed-to-mobile call, and 11% of a mobile-to-fixed line call.
Whether a reduction in the fees would be passed on to consumers is debatable, however. Evidence from other countries suggests that such cuts have not always benefited consumers, says Balancing Act?s Robert Hall.
"In theory, if interconnection costs are high, retail prices will be high," he says. But the link between interconnection fees and retail prices seems weaker in Africa than in other countries, and additional regulatory controls over retail prices may be necessary, he says.
Icasa is planning further hearings to determine whether to force down the cost of cellphone calls, although no date has been set for the inevitably fiery debate.
Meanwhile, Icasa has to decide where the truth lies in the debate on interconnection fees.
Basing the fee on the actual cost of the service is supported by Internet Solutions, which carries voice and data traffic for many of SA’s largest corporations. Although the telecommunications market is being liberalised, deregulation alone cannot ensure competition, the company says. Only decisive regulatory intervention can achieve effective and sustainable competition, it says.
The dominant operators Telkom, MTN and Vodacom should be forced to publish their fees, so that other players can see what they should be paying, says Internet Solutions.
The second network operator, which will initially lease some of Telkom’s facilities to provide its own services, also supports price controls on the dominant players. If pricing transparency is enforced, the new operator could be confident it is getting a fair deal from Telkom, its executives say.
But arguments from the opposing side are equally fierce.
MTN says Icasa has no power to impose cost-based fees, and even if it did, it would not have the effect it was hoping for. A reduction in wholesale fees would not cause an equal reduction in retail fees, warns Graham de Vries, MTN?s GM for legal and regulatory affairs. The prepaid cellphone business is reliant on incoming calls, and if operators make less on connection fees, they may raise pre-paid tariffs.
Telkom regulatory affairs executive Gabriele Celli says forcing an operator to merely cover the cost of interconnection will not let it recoup the billions of rands invested in building its network.
Which prompted Icasa councillor Zolisa Masiza to say: "We are always (being told) that the cost of interconnection is high. How do you propose we deal with those issues?"
Celli says he has no easy solution to offer, and is glad he is not in Icasa’s shoes.
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