Mobile termination rate mess

The Independent Communications Authority of South Africa (ICASA) recently dropped a bombshell when it announced that it will not review the interconnection amendment agreements as submitted by the mobile operators.

ICASA said in a press statement that they received interconnection amendment agreements between Vodacom, Cell C and MTN on the 25th January 2010, but that these agreements sought to bind the regulator to an undertaking not to review mobile termination rates until 1 March 2013.

ICASA Chairman Paris Mashile subsequently explained that any filing related to interconnect rates ‘has nothing to do with pre-conditions’, and that he was surprised to see that the mobile operators were brazen enough to put in conditions related to their agreed price reductions.  “I have no idea what motivated them to take this approach.  This is not how filings have been done,” Mashile said.

Vodacom, MTN and Cell C proposed an initial peak mobile termination rate cut from R1.25 to 89c in March, followed by a reduction to 85c in October 2011 and a further reduction to 80c in October 2012.  It is likely that the mobile operators wanted to capitalize on the fact that this is a voluntary price reduction, and hence tried to hamstring ICASA through its ‘no rate review until 1 March 2013” clause. 

Vodacom has indicated that a 10% reduction in interconnect rates will cost them around R200-million per year in profits.  Lower interconnect rates will have a similar effect on MTN and Cell C’s bottom lines, and it is therefore not surprising that the mobile providers would seek to set interconnect rates at predictable levels for the next three years. 

ICASA however has other ideas.  Mashile said that the Regulator will come up with its own pricing which is cost based.  According to Mashile ICASA has already determined that the cellular envrionment is not fully competitive, and that there are significant market players.

The ICASA Chairman promised draft regulations ‘to ensure a more competitive market and better pricing’ in March, which will be followed by a public consultation process after which final regulations will be gazetted. This process will give ICASA the ability to enforce lower interconnect rates through a regulatory process. 

Communications Minister Siphiwe Nyanda yesterday weighed in on the debate, saying that “The Ministry believes that the 89/77 cents (peak and off-peak respectively) are reasonable were they to be implemented within a shorter period than that suggested by the mobile operators.”

ICASA congratulated

ICASA’s refusal to abide by what the cellular operators tried to force upon them has been welcomed by many consumers and industry players. 

“The cellular operators are completely dishonest about what is essentially a matter of revenue protection and anti-competitive conduct, and what they are proposing is an insult to this country and its people,” said one industry expert.  “I probably have one of the more chronic cases of regulatory fatigue and cynicism in SA, but I would rather have it this way than send a message that any telecoms operator has carte blanche to bypass the law.”

ECN CEO John Holdsworth congratulated ICASA for showing that it is indeed an independent organisation that will not be pressured into rubber stamping an agreement concluded behind closed doors by the mobile operators that will still see ordinary consumers still paying almost three times more than they should be for off-net calls in 2012.

“ECN unequivocally supports ICASA’s decision not to endorse the mobile operators’ seemingly collusive agreement on a peak rate of 89 cents dropping to 80 cents in 2012 which bears no relation to the actual cost of interconnection,” said Holdsworth.

“ECN is appalled that the Department of Communications can even contemplate such an agreement when market studies in other African countries such as Namibia, Nigeria and Uganda have shown that the cost of interconnection is no more than 30 cents. The mobile networks’ outrageous bid to bind the Authority to an undertaking not to review interconnection rates until 2013 beggars belief! This latest development in the interconnection rate debacle exposes the mobile operators as being unapologetically anti-consumer.”

Holdsworth added that the law requires that interconnection pricing be cost based and that consumers should not accept interconnection rates of anything above 30 cents. “Any interconnection rate that is above 30 cents allows continued rank profiteering at the expense of the consumer,” said Holdsworth.

What dreams may come

It will be great news if the mobile operators decide to resubmit their interconnect rate cut proposal without any pre-conditions, and then let ICASA complete its investigation into cost based interconnection – giving it the freedom to enforce lower termination rates if needed.  This scenario however does not hold any direct benefit to Vodacom, MTN and Cell C, and will mean that their voluntary interconnect rate cut will be exactly that – voluntary.

MTN, Vodacom and Cell C indicated that they are keen to reduce interconnect rates in March, but fingered regulatory hurdles as a stumbling block which may prevent them from achieving the deadline.  Negotiations are ongoing regarding the matter.

If an agreement is not reached between ICASA and the mobile operators soon, it is possible that the current interconnect rates will remain unchanged until ICASA has finalized its investigation and regulations. 

This means that consumers and smaller industry players will be reliant on ICASA to ensure that there is an immediate peak interconnect rate cut of more than 36c per minute, and that the peak mobile termination rate will be less than 80c per minute by October 2012. 

Unless ICASA achieves this goal, it has effectively failed consumers. 

Mobile interconnect rate debacle – what do you think should be done?

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