High rates cannot be justfied
There is a mounting and increasingly incontrovertible body of evidence and experience from throughout the world that the high mobile termination rates (MTR) prevailing in South Africa (1.25 rands per minute) cannot be justified on the basis of costs.
Nor should they be maintained to avoid the alleged adverse consequences of much lower MTRs for the revenues and margins of mobile operators and hence potential damage to the development of the mobile market and the welfare of customers.
Mobile interconnection rates in South Africa and consequently the prices of mobile telephone calls are unquestionably very high by international benchmarks and well above the costs that cellular operators incur in terminating calls to their customers.
They distort competition and lead to higher market prices for mobile services, so that it becomes more expensive (more subsidies are needed) to reach the goal of universal service. Economists may argue about the absolute level of these costs, but it is unlikely that anyone could argue that the level of MTRs in South Africa today does not far exceed any reasonable allocation of total network costs to mobile call termination.
Substantial reductions in MTRs often accompanied by new glide paths for future decreases have recently been implemented in countries from Ireland to Chile and Namibia to Finland. New actual and proposed MTRs lie typically between US$0.03 -0.07, if local currencies are converted at current market exchange rates.
In line with the actions being undertaken by many regulators, and absent initiatives from South African cellular operators themselves, a significant reduction in MTRs should be implemented with no further procrastination. This reduction should be accompanied by a goal of eventually reducing MTRs along a glide path to well under the equivalent of US$0.10 per minute in PPP (Purchasing Power Parity) terms, to the range of 0.30 rands, or US$ 0.06-0.07 (PPP).
Mobile operators can respond to and mitigate any decline in their financial performance resulting from reductions in MTRs by exploiting the price elasticity of mobile usage to increase their customers’ average minutes of use, and by improving the efficiency of their operations.
At the same time, parallel initiatives should be urgently pursued to reduce excessive wholesale prices that mobile operators have to pay for use of Telkom’s (or other fixed network) facilities, so as to lower their operating expenses.
Reductions in MTRs alone will affect the financial circumstances of mobile operators more directly profoundly than Telkom. Lower MTRs are necessary, but they are only one of the changes in telecommunications pricing that should be actively and urgently stimulated for the sake of the country’s economy and consumers.
High interconnect rates – give your views
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