Call rate battle in South Africa

Telkom and Cell C have slammed draft regulations that will stop allowing them to charge more for mobile termination rates (MTRs) than Vodacom and MTN.

These complaints are included in their submissions in response to a discussion document published in November 2021 by the Independent Communications Authority of South Africa (Icasa).

The document proposes that the current asymmetric MTRs be scrapped, and all networks pay each other at the same rate.

MTRs, also called call termination rates, are the fees that mobile operators charge each other for calls to their networks.

These fees are supposed to reflect the cost of facilitating a phone call on a network and have come down substantially from around 125 cents per minute in 2009 to 13 cents per minute in 2017.

That has resulted in significant price reductions on voice calls for consumers.

Telkom and Cell C currently charge 13 cents to terminate a call on their networks, compared to the 9 cents that Vodacom and MTN are allowed to charge.

The reason for the discrepancy (and reductions) is an intervention by Icasa aimed at evening out the playing field between smaller network operators and larger ones in the cellular industry.

From left to right: Vodacom, MTN, Cell C, Telkom, and Rain logos shown on phones with similar colours to their brand marks

Having been established in 1993 and 1994, Vodacom and MTN had already built up larger customer bases and network infrastructure by the time that Cell C and Telkom had entered the market in 2001 and 2010, respectively.

Their greater economies of scale allowed the two larger operators to incur a much lower cost per call.

Vodacom and MTN also allegedly concluded an agreement that saw the companies increase their MTRs from 20 cents per minute to R1.25 in the years leading up to Cell C entering the market.

Icasa eventually managed to impose asymmetric MTRs in 2010 as a pro-competitive measure and revised them again in 2014 and 2018.

This included a “glide path” that would see gradual reductions in MTRs over time.

Initially, Cell C and Telkom were permitted to charge a rate of 44 cents, while Vodacom and MTN could only charge 20 cents.

However, following a court challenge, Icasa adapted the regulations with new charges.

These were as follows:

  • October 2014 to September 2015 — 31 cents vs 20 cents
  • October 2015 to September 2016 — 24 cents vs 16 cents
  • October 2016 to September 2018 — 19 cents vs 13 cents
  • October 2018 to September 2019 — 18 cents vs 12 cents
  • October 2019 to September 2020 — 16 cents vs 10 cents
  • October 2020 to current— 13 cents vs 9 cents

What operators are saying

Telkom maintains that removing the asymmetric rates at this stage would be detrimental to competition.

“Telkom and Cell C have yet to reach the minimum efficient scale to compete effectively,” the company said.

“The Authority’s proposal to remove the pro-competitive MTR asymmetry for existing mobile operators comes at a time when Vodacom and MTN continue to hold a duopoly position in the retail mobile market with a combined market share of 82% in terms of mobile voice subscribers, and 88% of mobile voice revenues in 2020,” it added.

Meanwhile, Vodacom and MTN have welcomed the proposal to treat all networks equally.

Among other arguments, the two large operators have suggested symmetric MTRs would be in line with international practice.

European benchmarking is not suitable

But Cell C has warned that benchmarking recent European regulation for call termination policy in South Africa is “wholly inappropriate”.

“The progression of South Africa’s mobile market does not in any way, resemble modern European markets, but rather the European markets of the early 2000s, prior to the push for symmetry in those markets that only began in the early 2010s,” the operator said.

“Cell C is therefore of the view that call termination rate regulation, and in particular asymmetry to the benefit of small operators with lower economies of scale and higher unit costs, is the only substantial active and arguably, effective, regulatory tool that Icasa has at its disposal to improve the competitive state of the market (and fulfil its mandate to give effect to the objects of the ECA).”

Cell C has also argued that call termination had only become truly cost-reflective over the past three years.

Icasa will now hold public hearings to interrogate the submissions and get a clearer and deeper understanding of the views expressed by networks.

Now read: R130 million Cell C scam — more people arrested

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Call rate battle in South Africa