Vodacom speaks out on potential interconnect losses
South Africa’s high mobile termination rates, aka interconnect rates, have come under fire from the Department of Communications (DoC), Parliament and the Independent Communications Authority of South Africa (ICASA).
MTN and Vodacom are fighting hard to avert a drastic interconnect rate cut which is being forced on them. The two leading cellular operators are trying to direct an industry-led process which will see the blended interconnect rate reduced from the current level of around R1.00 per minute to R0.78 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 proposed by MTN and Vodacom will drop to less than R1.00 per minute while the off-peak rate will fall below R0.70 per minute.
Cell C was however not happy with the proposal, calling for a once-off reduction of 40% in the peak interconnection rate and a flat-rate of R0.75. Cell C further proposed 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.
These rates are however higher than the proposal from Parliament’s Portfolio Committee on Communications’ (PCC) which put forward 60 cents per minute during peak times and a reduction of 15 cents annually until 2012.
Until now Vodacom and MTN have not reveal how much they stand to lose with lower interconnect rates, but Vodacom CEO Pieter Uys recently shed light on the issue. Uys said that a 10% reduction in peak Mobile Termination Rates (MTR) would result in an estimated R200-million loss.
Uys revealed that Vodacom’s net interconnection revenue gain was R964-million over the last six months, translating into just under R2-billion per annum.
If Parliament’s proposal of a 50% reduction in MTR is realized, Vodacom stands to lose as much as R1-billion in annual profits, something which clearly does not sit well with the cellular provider. “If the peak rates come down it will have a big impact on our financials and profitability,” said Uys.
The Vodacom CEO added that they will continue to engage with ICASA to try and get certainty on the issue of interconnect rate cuts. “The question is how much it will come down by, and when it will happen,” Uys said.
ICASA last month announced that it plans to have draft regulations ready by the end of March, and that the final wholesale termination rate regulations will be completed by June 2010. ICASA has not yet revealed what level it wants to set interconnect rates at, but it is not inconceivable that it will follow Parliament’s suggestion of 60c per minute.
Vodacom interconnect revenue – comments and views
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