The truth about mobile termination rates and asymmetry

Cell C, and I am sure MTN, have been asked whether taking our fight to the media is a good idea. And it’s a fair question given that our core business is to provide reasonably priced products and services of a good quality to consumers.

The answer is not a simple one because of the circumstances in which we presently find ourselves.

MTN and Vodacom have launched an aggresive legal attack on ICASA in order to ensure that their duopoly, their high prices (and the super-normal profits that come with this), and their entrenched dominance in the mobile market, are maintained.

Despite the fact that ICASA has fulfilled its mandate under the sector laws to promote competition which will lead to a reduction in prices to consumers (despite the extraordinary protestations to the contrary from the duopolists), these two licensees are hell bent on proving that ICASA has no grounds to set the wholesale prices at the levels it has, and to the extent that ICASA has the power, it has not exercised it correctly.

The legal points will be decided soon.

In the meantime, and for the last month, Cell C has had to use all its available channels to show that what the regulator has done is in the best interest of all consumers, the public in general, the South African economy and yes, the smaller operators, including Cell C.

Cell C wants to make sure the public are aware of what MTN and Vodacom won’t tell them.

For one, MTN and Vodacom are aguing that the regulator did not base its decision on their costs. But what they don’t say is that despite requests from ICASA to provide their costs to calculate the appropriate price controls, MTN and Vodacom did not do so.

Although they argue in their papers to the courts that ICASA did not arrive at a price control that correctly reflects their costs, they won’t say what their costs are.

The public deserves to know – this is an important part of the price people pay them.

In addition, what they are fighting for is the right to continue to charge excessive prices to other operators for “termination”. These prices ultimately get passed to consumers and limit the scope for retail price reductions. What they are fighting against is any regulatory support for competing (smaller) operators, which would clearly also result in lower prices. In essence they are fighting competition.

MTN and Vodacom are bemoaning the losses they claim they will suffer if the regulator introduces an asymmetric rate.

What they don’t tell you is that less than 5% of calls made by MTN and Vodacom customers land on either Telkom Mobile or Cell C’s network and are then subject to asymmetric rates.

As a result of the sheer scale of MTN and Vodacom, most of the calls their customers make are either on-net (so NO termination rate applies), or are made between MTN and Vodacom customers (so lower interconnect means they pay each other less).

While they lose on income, they fail to mention the saving on costs. Asymmetry will barely touch their bottom line given the small percentage of calls their customers make to Cell C and Telkom Mobile compared to the percentage of on-net calls and calls to each other’s networks.

Asymmetry is necessary, overdue, and a lawful remedy to promote competition. Fundamentally, it is the fact that asymmetry may assist the smaller operators in making a sustainable and genuinely competitive business that is the reason for the extraordinary ferocity of the attacks by Vodacom and MTN.

This is not a subsidy as MTN and Vodacom would have you believe. And even if it’s a subsidy, this is what MTN and Vodacom received from Telkom for more than a decade – and still do – and this is what helped them build out their networks so quickly.

This is a fight about competition, this is a fight about lowering the cost to communicate for all South Africans, but at the moment its not a fair fight and the public deserves to know the facts because the outcome will affect each and every South African.

I believe in our case, and I trust the relevant authorities will do the right thing for South Africa and its people.

This column was written by Cell C CEO Jose dos Santos, and was first published in the Sunday Times newspaper

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The truth about mobile termination rates and asymmetry