Interconnect cuts will wreak havoc on mobile industry, says MTN
MTN SA’s Managing Director, Karel Pienaar today said that local developments within the telecommunications market – especially mobile broadband infrastructure – would be severely hampered if interconnect rates are cut to the extent suggested by the Department of Communications and ICASA.
Pienaar explained that the revenue stream, which has been secured through current fixed and mobile interconnect rates in South Africa, has enabled operators like MTN and Vodacom to invest heavily in mobile infrastructure development in South Africa. This includes the deployment of base stations & fibre networks, subsidised SIM and prepaid device costs and maintaining static users who receive calls from other networks rather than make them.
This, says Pienaar, has allowed for a mobile penetration rate of just over 100% in the country, an impressive number when compared to other developing nations. Despite this high mobile penetration rate, many poverty stricken segments within the market still reside at roughly 50%, a number which MTN would like to increase.
Interconnect rates currently provide for a significant portion of the revenue required to invest in infrastructure. In 2008 MTN South Africa made roughly R1.8 billion in revenue from interconnect rates after costs, this was used to provide better services for customers says Pienaar.
According to recently conducted studies, a 10% increase in mobile broadband penetration typically provides for a 1.4% increase in GDP. For this reason MTN believes that it is vital for the good of South Africa as a growing nation for the regulator to allow mobile operators to maintain their primary revenue stream.
A more general decrease
This is not to say that MTN has not acknowledged the need for a decrease in interconnect rates. Pienaar confirmed that although the current rates might have worked well in the past, they might not ideally suit the current South African market.
What MTN is opposing is the ‘sharp and sudden’ decrease in interconnect fees planned within the next year. Thus far the Department of Communications has already proposed that fixed to mobile interconnect peak rates be reduced from R1.25 to 95c by 1 November, a move which would “wreak havoc on an industry like ours” says Pienaar.
Instead MTN executives have proposed a more incremental decrease which will allow the market to adjust gradually over a number of years. By slashing interconnect fees the mobile operators believe that the South African government will be hampering growth within the economy.
This proposed decrease has been referred to as a ‘glide curve’, a process which will allow parties such as MTN to gradually adapt their business models.
MTN executives stressed that the cut in rates would not immediately transfer to the consumer on a retail level, adding that the company would be forced to find other ways in which to pay for planned and promised infrastructure enhancements.
Vodacom on Tuesday warned that an arbitrary and ill-considered intervention to reduce cellphone interconnection rates could have unintended consequences. This includes the disconnection of many disadvantaged prepaid subscribers, higher access charges, less discounts for on-net calls, higher SMS and data charges, and increased retail voice charges for prepaid customers.
Interconnect rate cuts and infrastructure investment – comments and views
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