Wait a minute…

Cell C CEO Alan Knott-Craig has been calling for asymmetric call termination rates (aka MTRs or interconnect rates), arguing that this is needed to increase competition in South Africa’s telecoms market.

According to Knott-Craig, smaller players (Cell C and Telkom) should pay less to larger players (Vodacom and MTN) to terminate a call on their networks; with the inverse for calls made from the larger network to the smaller.

“There needs to be significant further MTR (mobile termination rate) reductions for the dominant mobile operators as well as a significant and sustained MTR asymmetry for smaller operators until they achieve a competitive degree of scale,” Knott-Craig said earlier this year.

Size and not age

Many people questioned whether Cell C, which has been operating for over a decade, should enjoy asymmetric interconnect rates which are typically used to assist new market entrants.

Knott-Craig argued that the size of the operator (hence subscriber numbers) should be the guiding factor to quality for asymmetric interconnect rates, and not the age of the operator.

Knott-Craig’s argument makes sense. Significant call termination rate asymmetry will make it possible for smaller players to compete more effectively with lower prices on on-net and off-net calls.

Competition will drive down prices for consumers, and asymmetric MTRs will help to remove the benefit Vodacom and MTN has in offering massively reduced on-net call rates to their subscribers.

History paints a different picture

When Cell C entered the market in 2001, the new competition had an adverse affect on pricing, and directly impacted consumers.

When Vodacom and MTN launched mobile services in 1994 they agreed on an interconnect rate of 20c per minute. However, when talks started of introducing a third mobile player (Cell C) things changed quickly.

In July 1999 Vodacom and MTN increased the MTR to 50c, and continued to increase this rate to R1.25 (for peak time calls) on 1 November 2001.

Cell C and Telkom (the smaller players) therefore had to pay MTN and Vodacom (the larger players) R1.25 to terminate a call on their network. This regime continued for nearly a decade.

Interconnect rates in SA (Source: Lewis – Pricing and tariffs: principles)

It was only after parliament and government got involved in 2009 when things started to change.

At the time Vodacom and MTN vociferously opposed interconnect rate cuts, arguing that it will severely harm the industry and the ability to invest in infrastructure.

The rate cuts happened despite Vodacom and MTN’s objections. What followed were lower prices to consumers and a more competitive environment.

Business is business

Knott-Craig was CEO for most of the time when Vodacom, as the largest telecoms player, charged smaller fixed line players much higher rates to terminate a call on the Vodacom network than vice versa.

He was also CEO at the time when mobile termination rates were increased rapidly before Cell C entered the market. Cell C was therefore placed at a massive disadvantage from the start.

The Cell C CEO is now on the other side of the fence, and is fighting hard to overturn a regime which he helped to create.

The explanation for these seemingly conflicting decisions from Knott-Craig may be simple: doing what is best for shareholders.

As Vodacom CEO, high interconnect rates made financial sense for the company and shareholders. As Cell C CEO, significantly lower asymmetric interconnect rates make sense.

If it will help to argue that Cell C is doing it to help consumers to achieve his goals, Knott-Craig will may not let that opportunity slip.

Knott-Craig is undeniably one of the most successful telecoms CEOs globally. The good news for consumers is that, as Cell C CEO, he is now on their side – fighting for more competition and lower prices.

More on interconnect rates

Surprise Cell C interconnect move

Termination rate cuts: who will drop prices?

Interconnect price cuts and mobile call rates