Blinded interconnect rate
Communications Minister Siphiwe Nyanda recently announced that Vodacom, Cell C and MTN, had agreed to cut the peak mobile interconnect rate by 36c – from R1.25 per minute to 89c per minute. The current off-peak mobile interconnect rate of 77c per minute will remain unchanged. For Vodacom and Cell C this cut will be implemented on the 1st of February 2010 while MTN has agreed to lower its peak interconnect fee by the 1st of March 2010.
This peak mobile termination rate (MTR) tariff reduction was welcomed by consumers and telecoms players, and companies like Vox Telecom and ECN have already committed to passing these savings on to their subscribers. Virgin Mobile and Cell C have also announced price cuts less than a day after the announcement (maybe a well timed promotion, but lower prices none-the-less).
ECN CEO John Holdsworth however warns that this should only be seen as a first step, and said that this may well be an attempt by the Communications Minister and the mobile operators to appease politicians and the public. Holdsworth added that the mobile operators do not want to lose control of the process, and that the Independent Communications Authority of South Africa (ICASA) must stick to its mandate to ensure that interconnect rates are reduced to cost based rates.
Blended Interconnect Rate
The Minister’s announcement last Thursday will see a reduction of 36c for peak rates by February/March 2010, and no change in off-peak rates. The mobile operators have previously given some indication of their ‘blended interconnect rate’ – a measure of the average interconnect rate paid for calls terminating on a network. The calculation of this ‘blended rate’ however remains sketchy.
A well known telecoms expert recently coined the term ‘Blinded Interconnect Rate’ for the lack of clarity and the varying nature of this figure, and this description may prove to be very fitting when looking at the figures.
Last month MTN and Vodacom proposed to reduce this rate, i.e. the blended interconnect rate, to 78c per minute. Vodacom further revealed that their ‘current’ blended interconnect rate was R1.00 per minute while MTN’s rate was closer to 96c. Both Vodacom and MTN said that community telephone service termination rates (amounting to 6c per minute) were not included in their blended interconnect rate.
The mobile operators did not want to reveal what their peak/off-peak call ratios are, but this is where listening to your mathematics teacher in high school comes in handy. According to the information supplied by Vodacom and MTN their respective peak/off-peak call percentages are 49%/51% and 40%/60% [this is not correct as MTN has now indicated that they include CST rates in their calculation] respectively. This means that more calls are terminated during off-peak times than peak times, but under the new deal negotiated by Nyanda there are no termination rate price cuts for after-hours calls.
It is also of value to look at the agreement announced by the Minister and the proposal put on the table by MTN and Vodacom. The new agreement means that the new blended interconnect rate for MTN will be in the region of 81c while Vodacom’s will be 83c – higher than the 78c proposed by the two mobile giants.
Cell C’s confusing decision
The lower peak interconnect rate means that the business sector will benefit most from the recently announced agreement. Lower LSM groups – who typically make cheaper, after hour calls – would have however benefitted more from the proposal initially put on the table by Vodacom and MTN.
It is therefore perplexing that Cell C, which specifically targets lower income groups, will agree to the latest agreement (and not the MTN/Vodacom proposal) where there is no reduction in off-peak interconnect rates. A possible explanation may be that Cell C is a net receiver of off-peak interconnect revenue: something which cannot unfortunately be proven without exact figures.
If Cell C was dedicated to ensuring lower rates to its low-LSM user base, which would prefer cheaper after hours calls, why not rather agree to Vodacom and MTN’s proposal which would have seen an off-peak interconnect rate of below 70c per minute? This begs the question as to whether Cell C is truly flying the flag for its subscribers, or merely wants to give that impression while ensuring that it continues to benefit from higher off-peak interconnect rates.
Cell C was asked why it did not want to accept the initial agreement, what its blended interconnect rate is and whether the Vodacom/MTN agreement would not have benefitted their customers more, but the cellular provider did not answer any of these questions.
All of this may substantiate Holdsworth’s argument that this was possibly a PR exercise which on the surface looks great, but is in essence a worse deal for consumers than what the two dominant mobile providers initially put forward themselves.
Blended interconnect rate – discussion
Loading ...