Cutting mobile prices
Just two years ago, President Thabo Mbeki said in his state of the nation address that government believed that the “unacceptable situation” in which some of SA’s fixed-line rates were 10 times those of developed countries would soon be a thing of the past.
That, unfortunately, has yet to happen. But what is less well documented is our high cellphone rates. For the past two years, the Independent Communications Authority of SA (Icasa) has been investigating complaints about the high cost of mobile services.
The most compelling of these came from the Communications Users Association of SA, which asked Icasa to look into a range of issues. These included why the introduction of the third cellphone operator, Cell C, just more than five years ago, did not lead to reduced prices; whether there is sufficient competition in the market; and the different interconnection charges between networks.
Icasa has now called for comments on its findings, which focus on the conclusion that the operators have significant market power, and that interconnection fees are inflated and stifling competition. Its finding that operators are dominant players will allow Icasa to force them to charge interconnection fees that are cost-based. If implemented, these findings will have a profound impact on cellphone call charges.
However, Icasa could have a battle on its hands. It’s likely that the operators — MTN, Vodacom and Cell C — will take legal action to oppose Icasa’s move to label them dominant players. And it remains to be seen whether Icasa is sufficiently resourced to fight off any such action or to implement its findings.
The regulator has been tasked with putting the new Electronic Communications Act into practice, legislation that broadens its responsibilities. The act lays down a good framework for opening up the telecoms market, but there remain concerns that Icasa has neither the skills, capacity nor funding to implement the 200-odd regulations outlined by the new legislation.
Nevertheless, the act has opened the door for Icasa to pursue issues it was previously unable to, a point in case being high interconnection fees. This is an important issue for the regulator as it tried to force down fees in 2005 but was stymied by the changing legislation.
Icasa has now risen to the challenge once again, arguing that mobile prices will fall only if interconnection fees are addressed. A report by Genesis Analytics estimates that interconnections fees are at least 30% pure profit, and that 75% of the cost of a Telkom call to a cellphone goes straight to the cellular operators.
What is clearly needed is for cellphone operators to charge a fee that mirrors the cost of making the connection without the massive profit margin attached. This is not out of line with international practice or, to bring it closer to home, with fees charged in countries such as Tanzania, Nigeria or Uganda.
SA’s rates are at least double the actual cost of making the connection. This is hardly surprising, given that cellular networks MTN and Vodacom ratcheted up the interconnection fee in the early 2000s, just before the introduction of competitor Cell C.
In 1999, the interconnection fee was about 20c a minute and, two years later, it had risen to R1,25. Icasa argues this was done deliberately to stymie new rival Cell C.
Icasa is on the right track here. Not only is it international best practice to lower interconnection fees, it is the easiest, and most effective, way to cut cellphone prices. After years of creaming it, it’s time operators accepted they are defending the indefensible.
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