Cell C’s MTR fury
South Africa’s third-largest mobile operator, Cell C, has expressed its dissatisfaction with and disappointment at regulator Icasa’s revisions to its proposed mobile termination rates (MTRs).
Cell C Ceo, Jose Dos Santos, has called the rate review “rushed” and questioned the process itself, arguing that it entrenches the “duopoly” of incumbents Vodacom and MTN. But an analyst suggests that Icasa has done its homework this time around and that a legal challenge to the revised rates would likely be difficult and potentially fruitless.
MTRs are the rates operators charge one another to field (or ‘terminate’) calls from other networks to theirs.
These rates are set by the regulator and – in markets like South Africa where there are smaller, newer players competing with larger, olders ones – often include a system of asymmetry whereby smaller players pay larger ones lower rates than those the larger ones pay them. This isn’t simply to stimulate competition, but because larger, more established networks are expected to be more efficient – thus fielding calls costs them less than it does newcomers.
The regulator’s proposed new termination rates are for the period October 1 2014 to February 28 2018 and will see MTRs fall, albeit not as rapidly – and with less aggressive asymmetry – than the rates proposed last year. Vodacom and MTN contested those rates and a court ruled in their favour but allowed the original cuts to come into play for six months while forcing Icasa to review them.
Under the original rates, Cell C and Telkom Mobile would’ve benefited from higher asymmetry rates than they will under the new ones, something Cell C lauded at the time but which critics argued was tantamount to subsidising South Africa’s third operator. An operator they argue has been in existence for over a decade and thus can hardly be classed as a “newcomer”.
“Cell C is disappointed by the dramatic U-turn Icasa has made in its approach to remedy the current market failure and promote competition in a duopolistic market,” Dos Santos says. “The proposed regulations appear to be an acknowledgment by Icasa that the duopoly that exists in the South African market today is an acceptable state of affairs and will be allowed to continue. In the long term, this will be catastrophic to both the wider telecoms industry and to the South African consumer.”
Asked whether Icasa’s second attempt at setting MTRs had corrected the errors of its first, Vodacom spokesman Richard Boorman says Vodacom is “studying the announcement” and will be providing feedback in due course. “Among other points of discussion, we’d like to engage with Icasa to better understand the basis of the rates in the later years, particularly year four,” Boorman says.
MTN, meanwhile, says only that it “will continue to engage constructively with Icasa, the regulator on this matter”. Like Vodacom, MTN is “studying the proposed regulation and rates so as to respond to the authority at the appropriate time”.
Brian Neilson, research director and head of telecoms consulting at BMI-TechKnowledge (BMI-T) says the consumer may well have benefited more if Cell C had been given “very favourable asymmetry” but adds that he thinks a legal challenge from Cell C is less likely because Icasa looks to have been “more rigourous” and appears to “have done its homework this time”.
Regarding the reduction in asymmetry, Neilson says it is “more in line with what would be done internationally” and that, if it’s been done with due process this too reduces the grounds for a legal challenge from Cell C.
“The big change this time is that the operators have been forced to give Icasa statistics and figures on their actual costs,” Neilson explains.
He also points to the fact that in early 2017, fixed and mobile termination rates will be the same. “One could argue that fixed-line termination rates should now be given preference, and shouldn’t necessarily be equal to mobile, because there are 50 million SIMs out there, but only 5 million – and falling – fixed lines, and Telkom’s copper network is costly to maintain.”
When the mobile networks started out and infrastructure still had to be built, mobile was more expensive than fixed, Neilson says, adding that Icasa’s cost study may have shown that the cost of fixed calls may actually outstrip those on mobile today. “In those early days, termination went up astronomically while fixed did not,” Neilson says. “Now Telkom is claiming an access-line deficit, but fixed and mobile termination rates are converging.”
Neilson says the world trend is towards zero termination rates, but explains that they are “notoriously difficult” to implement. “You can get any number of consultants or accountants to look at the numbers and they’ll all come out with different cost analyses. It’s not easy to assess any more.”
Mobile operators are increasingly making inroads into the fixed space as they look to offer converged services to their customers. “ The zero termination scenario could be reinvented in a different way,” Neilson says. “Not as a termination agreement, per se, but as a facility leasing agreement. A commercially decided agreement, rather than regulatory based.”
It remains to be seen whether or not Cell C will contest Icasa’s revised MTRs. If it does it’s likely going to have a harder time of it than Vodacom and MTN did the first time around, because Icasa will likely have done its level best to ensure that this time around, its proposed rates are more watertight than they were on their first outing.
Either way, with MTRs falling consumers are sure to benefit as operators cut prices and the next bout of the pricing battle begins.
Source: Moneyweb
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