Political will or sour grapes?

You wouldn’t want to be a mobile operator in South Africa at present, what with the furore over interconnection rates.

Government, Parliament and the regulator all have their sights locked firmly on South Africa’ mobile companies, particularly the giants Vodacom and MTN.

So while the companies’ regulatory teams are working overtime trying to justify the interconnection regime, and their chief executives are crying from the hills that they are not ripping off South African consumers, it appears that a change is coming.

The real question is: why now?

Despite what optimistic politicians, such as the Independent Democrats’ Patricia De Lille, would have you believe, the answer is not about Parliament keeping the mobile companies honest.  This is a move that is clearly being driven by government.

So who is behind the new impetus and why has it taken government and the regulator so long to act?

Part of the reason may be found in last week’s column by Financial Mail editor Barney Mthombothi.

Mthombothi alleges that President Jacob Zuma, fresh from his inauguration in May, summoned chief executive Reuben September to his Forest Town home in Johannesburg.

The topic of conversation, according to Mthombothi, was Telkom’s sale of 15% of its mobile arm, Vodacom, to Vodafone, which already owned 50% of the South African mobile giant.

The deal would see Vodacom listed on the JSE and Telkom, which had been at loggerheads with Vodacom for quite a while, completely disinvesting in it.

But with fixed-line revenue in decline, Telkom was in fact being propped up by its mobile arm.

Government, as Telkom’s largest shareholder with a 39.8% stake and an effective further 6.7% held by the Public Investment Corporation, would have enjoyed the massive profits that Vodacom was raking in.

According to Mthombothi, September indicated that the deal could not be reversed and left, whereafter he alleges that Vodacom chief executive Pieter Uys was summoned to a meeting with Zuma and Communications Minister Siphiwe Nyanda.

Not much came of this meeting and, on May 18, Vodacom listed on the JSE, despite a last-minute attempt by Cosatu and the Independent Communications Authority of South Africa (Icasa) to scupper the deal.

Mthombothi alleges in his column that Nyanda informed both Telkom and Vodacom in the build-up to the listing that government would go to court to prevent the deal from being concluded.

It is clear that, if Mthombothi’s claims are correct, government had to use Icasa and Cosatu to do its dirty work, because former president Kgalema Motlanthe had already given his approval for the deal.

The last-minute court application by Icasa and Cosatu smacked of political interference because of Icasa’s about-turn on whether it needed to approve the deal or not.

Commentary at the time suggested the sticking point was that Telkom’s BEE shareholder, the Elephant Consortium, was set to benefit hugely from the deal.

The Elephant Consortium, which was made up of people close to Thabo Mbeki, such as Smuts Ngonyama, Andile Ngcaba and Gloria Serobe, acquired a 6.7% stake in Telkom in 2005.

The fact that Ngonyama is now a member of the Congress of the People and other consortium members were suspected of being aligned with the breakaway party was said to rankle the ANC and its alliance partners.  It was seen as the real reason behind the legal challenge to the Vodacom deal.

Back to the furore over interconnection rates.

Interconnection fees are the rate a telecommunications company charges another operator to terminate a call on its network.

South Africa’s interconnection rates are among the highest in Africa and analysts have been predicting that mobile call costs could be slashed by 30% if they were regulated to a cost-based rate.

The fact that the high rates are an obstacle to competition in the mobile space has been widely reported and commented on in the media and by the telecoms sector for many years.

Interconnection rates were 20c in 1994, but Vodacom and MTN managed to convince Icasa to allow them to increase them by 635% to the current R1.25 shortly before Cell C entered the market.

The logic behind this move was that higher rates protect the companies with the largest market share and discriminate against smaller companies and new entrants.

Icasa has been busy with attempts to regulate interconnection to a cost-based rate for many years, but it recently admitted that the Electronic Communications Act is flawed and that an amendment may be needed before it can reach a solution.

In stepped Nyanda to the rescue, with reports that he had been meeting South Africa’s telecoms companies to facilitate a negotiated lowering of interconnection tariffs.

On the face of it Nyanda was showing the political will to solve the problem – a response that many had been calling for from his predecessor, the late Ivy Matsepe-Casaburri, to no avail.

But a more cynical analysis of the political will to solve the conundrum would point out that only now that government is no longer benefitting from the massive profits generated by Vodacom is it getting serious about regulating interconnection.

“The biggest loser is obviously going to be Vodacom,” said an analyst, who agreed to comment on condition of anonymity.  “Previously the government would have had an incentive to protect the cash cow, but not anymore.”

Another analyst said: “Perhaps this is about a new minister with a big stick, intent on initiating a solution. However, it may just be a logical consequence of having less financial interest in Vodacom.”

Or could government’s tough stance on interconnection just be a revenge move?  Was it spurred into action by the reluctance of Telkom and Vodacom to play ball when Zuma and Nyanda tried to prevent the Vodafone transaction from taking place?

Another analyst said it was difficult to know what the real reasons were behind Nyanda’s maneuvering and that there might be a “perfect storm” of reasons.

“It might be that they are angry after the Vodacom deal.  It might be that they no longer have the financial incentive.  It might be the increased pressure to find a solution,” said the analyst.

Whatever the real reason, let’s hope that it is achieved in a transparent and procedurally fair way so that South African consumers are not left to rue the interference of government in Icasa’s regulatory functions.

The other key point we can take from this whole saga is the fact that government cannot play the role of policy director in sectors in which it is heavily invested, because it may be looking after its own interests and not those of South African consumers.

Interconnect rate battle:  Why Now?

Mail & Guardian



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Political will or sour grapes?