Interconnect price cuts: The facts
The Independent Communications Authority of SA (ICASA) announced on Friday that the mobile operators had nothing to put on the table as they could not agree on a mobile termination rate amongst themselves. This followed a failed meeting between the Regulator, Vodacom, MTN, Cell-C, Telkom, and ISPA where ICASA hoped to convince mobile operators to reduce the mobile termination rates.
Despite the lack of an immediate industry-led solution, ICASA said that it will continue with its regulatory processes of developing a framework for competition and cost-based pricing in the voice market as set out in Chapter 10 of the Electronic Communications Act (ECA).
ICASA added that it has already declared all mobile operators as having Significant Market Power (SMP) in terms of mobile termination rates. “And, in terms of Chapter 10 of the ECA, the Authority has already identified and defined the call termination market as one of the priority markets to be subjected to competition regulation,” said ICASA.
MTN and Vodacom in agreement
Shortly after ICASA lashed out at the mobile operators in a press statement, MTN and Vodacom issued their own press statements saying that they have reached an agreement on interconnect rates and are pursuing bilateral negotiations with Cell C and other operators.
The proposed agreement will see the blended interconnect rate reduced from the current level hovering around R 1.00 per minute to R 0.78 per minute. The blended rate is the effective ‘average’ interconnect rate influenced by both the current interconnect rate and call volumes during peak and off-peak rates. This however excludes the subsidized community phone termination rate of 6c per minute.
While no firm details have been laid down regarding the proposed peak and off peak mobile termination rates, it is understood that the new peak interconnect rate will drop to less than R 1.00 per minute while the off-peak rate will be below R 0.70 per minute.
Cell C unhappy
While Vodacom and MTN seem happy to immediately drop interconnect rates to a level which they find palatable, Cell C is effectively holding back the industry-led cut because it wants an asymmetric rate to assist it to grow.
“Unfortunately we have been unable to reach agreement with Cell C who has insisted on an asymmetric approach. Vodacom does not believe that Cell C is a new entrant to the market and therefore does not support Cell Cs assertion,” Vodacom said in a press statement.
MTN also confirmed that Cell C’s insistence on an asymmetric mobile termination rate is holding the agreement back. ICASA’s statement, that all mobile operators have Significant Market Power (SMP), does not help Cell C’s argument, with MTN questioning why Cell C should get preferential treatment as it is not a new market entrant and has SMP.
Cell C CEO Lars Reichelt however argues that the proposals from its competitors offer no significant changes to the current regime and it is for this reason that they are in disagreement with Vodacom and MTN.
“Cell C maintains its position on a once-off reduction of 40% in the peak interconnection rate and a flat-rate of R 0.75. This international best practice leads to more competitive pricing and it is only through competition that retail rates will go down,” said Reichelt.
“Mobile termination rate asymmetry is the best way to ensure a levelled playing field and again to increase competition. Cell C is therefore proposing that Vodacom and MTN pay the smaller operators a mobile termination rate of R0.75 per minute whilst the smaller operators, including Cell C, pay Vodacom and MTN a rate of R0.65,” said Reichelt.
Reichelt concluded that he is very willing to enter into dialogue with competitors, provided Vodacom and MTN agree and are willing to put forward proposals that will not maintain the current status quo.
The way forward
While an industry led solution is likely to be the fastest way to cut interconnect rates, the regulatory processes will continue independent of any agreement – or lack thereof – by the mobile operators. A regulatory solution may force far larger interconnect rate cuts than proposed by the operators themselves.
The Portfolio Committee on Communications proposed that mobile and telecoms operators drop the interconnection rates with effect from 1 November 2009 to 60 cents per minute during peak times. It further wants interconnection rates to be reduced by 15 cents annually on 1 November for each successive year until 2012. Both the starting point and eventual value are significantly lower than what MTN and Vodacom are comfortable with.
ICASA said that it is developing a framework for competition and cost-based pricing in the voice market as set out in Chapter 10 of the Electronic Communications Act (ECA). “The Authority is convinced that the conclusion of its regulatory work remains the most optimal way to the resolution of these matters. This process will also be concluded by end of this financial year (31 March 2010),” ICASA said.
It is not clear if an agreement between the mobile operators will influence the eventual regulatory framework which will be imposed on the cellular operators, but what is certain is that Vodacom and MTN will do their level best to avoid drastic rate cuts similar to those set out by parliament.
Interconnect rate cuts – discussion
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