Vodacom, MTN preventing drastic price cuts: Cell C

Cell C will be able to drop its cellphone call rates from the current 99c per minute to 79c per minute if the new mobile termination rates (MTR) are allowed to be implemented in less than a week’s time on April 1, the South Gauteng High Court heard on Wednesday.

Vodacom and MTN have approached the court with urgent applications to stop the implementation and have it reviewed.

Termination rates are the fees cellphone companies charge each other for carrying the calls of the other networks’ clients.

In terms of the new regulations Vodacom and MTN will have to reduce their rates by 50% to 20c per minute, while Cell C and Telkom Mobile will be allowed to charge 44c per minute.

Advocate David Unterhalter (SC) acting for the Independent Communications Authority of South Africa (Icasa) told the court that MTN and Vodacom started increasing these rates from 2000, just before Cell C entered the market in 2001 and sharp increases followed its entry.

Being a small operator, a large portion of its calls are terminated on the Vodacom and MTN networks and the termination rates form a floor price for small operators, Unterhalter said.

He argued MTN and Vodacom benefited greatly over many years from high termination rates and it helped them to maintain their dominant positions.

Small operators who had to pay these high rates on the other hand struggled to drop their prices to consumers and that is why cellphone rates in South Africa stayed very high for many years versus other comparable countries in Africa.

He said if the regulations containing the new tariffs are set aside there will be a regulatory vacuum and in an unregulated environment small operators are captives of the big ones.

Unterhalter said after the introduction of regulation in 2010 with a measure of asymmetry or differentiation between the rates of large and small operators, Cell C was able to drop its call rates from R2.85 per minute to 99c per minute and Vodacom and MTN responded. The determination stimulated competition.

In response to the argument of Advocate Wim Trengrove for MTN that there is no guarantee that the smaller operators will pass the lower interconnection rates on to their customers, Unterhalter said experience shows otherwise.

Terminations rates provide the floor for small operators. The only way they can grow is to achieve scale. That can only be achieved by gaining market share and market share can only be won by dropping the prices one charges customers, he said.

He asked the court to exercise caution when it decides whether to interfere with something that is very important to the South African economy and reverse to an undesirable situation.

Vodacom on Tuesday argued that Cell C’s financial pain is self-inflicted. In August last year it reported sterling results to shareholders with exceptional subscriber growth.

It however pleaded poverty in court documents saying it is battling financially and therefore needs the asymmetrical interconnection rates. Vodacom argued Cell C’s financial woes are the result of the price war it embarked on by dramatically dropping its prices to consumers.

Source: Moneyweb

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