Cellular14.04.2015

Cellular price hikes in South Africa: we were warned

Vodacom subscribers were shocked recently when they received a notice stating their contract fees would increase from 1 May 2015 – despite their contracts not being up for renewal.

Cell C contract customers reported similarly surprise when their bills were suddenly higher at the start of February, though the operator did announce its plans to hike prices towards the end of December 2014.

Both sets of users should have seen the hikes coming, however.

During a battle over mobile call termination rates, local mobile networks warned that an unfavourable outcome could result in “catastrophic” consequences, including price hikes.

Call termination rates are the fees networks pay one another to connect voice calls to one another’s networks.

Cell C vs MTN and Vodacom

Cell C said in an affidavit presented to the South Gauteng High Court that if the call termination rate battle of 2014 did not go its way, it would have to increase retail rates.

MTN and Vodacom issued similar warnings, indicating they would lose out on R1 billion in revenue if Icasa went ahead with a proposed reduction in termination rates, which included greater asymmetry for Cell C and Telkom.

Asymmetry is when a group of networks are allowed to charge the rest more for terminating a call on their network.

MTN SA CEO at the time Zunaid Bulbulia warned that subscribers could face a kind of network load shedding, similar to the rolling blackouts Eskom uses to manage electricity demand.

With these opposed forces in South Africa’s mobile industry, Icasa was faced with a “damned if you do, damned if you don’t” scenario.

No matter which way the call termination regulations went, the networks promised consumers would lose.

The regulator ended up making a number of changes to its termination rate regulations, including reducing the level of asymmetry that Cell C and Telkom enjoyed.

None of the networks were happy with the outcome.

Are MTRs to blame for the price hikes?

Cell C said Icasa’s call termination regulations were a contributing factor to the price hikes.

“The unfortunate move by the regulator in the mobile termination matter, providing smaller players with an insignificant asymmetry, has forced the company to look at product offerings that it has subsidised since 2012,” Cell C said.

“Continued rising inflation, economic pressures, and significant additional costs caused by continued rolling blackouts were also factors contributing to rising costs and a review of our pricing model.”

Vodacom said the mobile termination rate cuts have had a major impact on its business, but added there were other factors that led to the price hikes.

“The average effective price of both voice and data on Vodacom’s network is down by around 50% over the last two years,” a Vodacom spokesperson said.

“This kind of deflation is unprecedented when compared to items such as food and electricity. It also contrasts with the massive increase in investment going into our network, with almost R30 billion spent over the past four years.”

Its costs have also increased due to, among other things, electricity supply issues.

“Given the squeeze from both sides, we have had to review our tariff structures in tandem with implementing cost reduction programmes within the company.”