MTN cheaper call rate paradox

Call termination rates do not have a direct impact on retail prices, MTN argued during the recent court battle with the Independent Communications Authority of South Africa (Icasa).

Yet on 14 April 2014, just under two weeks after a termination rate reduction kicked in, MTN announced a drop in its call rates for prepaid customers from 99c/minute to 79c.

The lower call rate is being offered on a 3 month promotion, but MTN has said that it intends to make the rate permanent.

MTN and Vodacom fought against Icasa’s call termination regulations, arguing that the regulator had not followed the correct process in determining the rates, and that the proposed price cuts would irreparably harm the two cellular giants.

A big gripe the two companies had with the new rates is that they calculated that hundreds of millions of their revenue would go to Cell C, which they argued should not be subsidised in this way.

The High Court found that Icasa’s regulations were unlawful and invalid, but suspended the declaration of invalidity for 6 months during which time the regulator has to rework them, following the correct process.

This means that even though the ruling can be considered a victory for MTN and Vodacom, the lower call termination rates they fought against will be implemented for 6 months.

They will therefore only be able to charge 20c/minute when other operators connect calls to their networks (down from 40c), while Telkom Mobile and Cell C can continue to charge MTN and Vodacom 44c/minute.

However, this also means that MTN is now only paying Vodacom 20c/minute for calls placed from the MTN network to Vodacom.

Asked whether MTN’s lower call rates were enabled by the reduction in termination rates, chief marketing officer at MTN, Brian Gouldie, said that market demand drove the change.

“Throughout its 20 year history, MTN has been at the forefront of driving down the costs of telecommunications through innovation and smart solutions, we have introduced this flat rate because we understand the needs of our customers,” Gouldie said. “This exciting promotion is a response to the voices of our customers who have been clamouring for a simple, no-frills and fixed rate.”

Coincidence?

Is the timing of the price cut then just co-incidence?

Dominic Cull from Ellipsis Regulatory Solutions, said that he believes MTN could argue that it had room for its recent price cuts without the reduction in termination rates.

Reports that MTN’s market share in South Africa is under pressure may also be used to argue that the price cuts were not motivated by wholesale cost reductions, Cull said.

However, there are indications to the contrary, he added.

“The timing – within two weeks of the court decision and Icasa’s new glide path kicking in – firmly indicates that this is a reaction to recent events,” Cull said. “This is reinforced by the fact that the new pricing has been introduced as a promotion even though MTN intends to make it permanent.”

Cull said that service providers use promotions to shorten the time to market of new rates as promotional rates do not need to be filed with Icasa.

The new Icasa CEO has said that these practices from mobile operators are misleading, Cull highlighted.

“MTN may well have been surprised at the High Court judgement,” Cull said.

He said that MTN had good reason to be confident that the new rates would not be implemented, and would not be alone in being surprised at the High Court outcome.

“The High Court action was always about Rands and cents,” Cull said.

He added that it is possible to see from MTN’s retail rate cuts who the real winners were.

“For the next six months at least,” Cull said.

More cellular prices and mobile termination rate news

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