Telkom takes call rate battle to court

Telkom is dragging the Independent Communications Authority of South Africa (Icasa) to court over its decision to scrap asymmetric mobile termination rates (MTRs) for smaller mobile network operators.

Termination rates are the fees operators pay one another when customers on one network make calls to those on another.

In its interim results for the six months ended September 2022, Telkom said Icasa had concluded that only new mobile network players might qualify for asymmetric MTRs, while a 20% threshold to qualify for termination asymmetry must also be dropped.

“Telkom has filed a court application to review and set aside the determinations in Icasa’s findings document arguing that the conditions upon which asymmetry was conceived persist, that the findings are irrational and that they do not promote competition,” the operator said.

Mobile termination rates have plummeted from about 125 cents per minute in 2009 to 13 cents per minute in 2017, resulting in substantial price reductions on voice calls for consumers.

Icasa’s findings come after it published its discussion document on MTRs in November 2021 for public comment, proposing the MTRs be scrapped, and all incumbents charge one another the same rate.

Those proposals were previously heavily criticised by Telkom and Cell C.

Telkom argued that it and Cell C were yet to reach the minimum efficient scale to compete effectively.

“The Authority’s [Icasa’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,” Telkom said.

Vodacom and MTN support scrapping the MTRs, with the latter joining Icasa in opposing Telkom’s legal challenge.

The table below shows the mobile subscribers and market share of Vodacom, MTN, Telkom, and Cell C according to their latest available financial results.

Their revenue market share based on their most recent annual results is also shown in the table and chart below.

A recent Daily Investor analysis revealed that Vodacom gained market share at the expense of Telkom and Cell C over the past nine years.

Biggest mobile networks in South Africa — Subscribers and market share
Mobile network Number of subscribers Subscriber market share Revenue market share (2021)
Vodacom (September 2022) 45.51 million 40.56% 43%
MTN (September 2022) 35.88 million 31.98% 26%
Telkom (September 2022) 18.02 million 16.06% 23%
Cell C (June 2022) 12.79 million 11.42% 8%

As it stands, Telkom and Cell C are allowed to charge 13 cents to terminate a call on their networks, while Vodacom and MTN may only charge 9 cents.

These asymmetric MTRs were intended to level the playing field between the older networks and newcomers to increase competition in the market to the benefit of subscribers.

While Vodacom and MTN were launched in South Africa in 1993 and 1994, Cell C and Telkom Mobile have only been around since 2001 and 2010, respectively.

Telkom held a 50% share in Vodacom until 2008, and it only decided to launch its own mobile network after selling its stake for around R22.5 billion.

Due to their greater economies of scale, the two larger networks incurred much lower costs per call, making it difficult for the new players to compete while still building out their networks.

Vodacom and MTN allegedly also agreed to push their MTRs up from 20 cents per minute to R1.25 in the lead-up to Cell C’s launch,

This culminated in Icasa passing call termination rate regulations in 2010, and revising them on several occasions after that.

Those revisions included a glide path that would see MTRs reduced over time, as the gap between the bigger and smaller networks started to shrink.

The latest glide path is 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

Vodacom and MTN’s arguments in support of a switch to symmetric MTRs between the incumbents include that it would be in line with international best-practice, such as in Europe.

However, Cell C said comparing South Africa’s operating environment to Europe would be “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 further contended that true voice call cost-reflectivity only came about in the past three years.

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Telkom takes call rate battle to court