ICASA suggests aggressive interconnect cuts

ICASA published its final Call Termination Regulations today, setting guidelines regarding the termination rates of both mobile and fixed calls.

According to ICASA these regulations intend to reduce the wholesale price licensees charge each other for reaching their customers from the current commercially agreed upon scenario to a regulated rate based on the cost of providing such a service.

“Such action is necessary to foster competition in the ICT sector, ultimately with the effect of lower prices being paid by consumers,” ICASA said.

Basic proposed changes

ICASA proposed the following pricing guidelines in April this year:

1. Mobile termination rates are proposed to be reduced to R 0.65 from July 2010 and further reduced to R 0.40 from July 2012.
2. Fixed termination rates are proposed to be reduced to R 0.15 from July 2010 and further reduced to R 0.10 from July 2012.

This would have equated to significant price reductions from the current 89c per minute for peak mobile call termination and 77c for off-peak mobile call termination.

During public hearings held from 28 to 30 June 2010 on the draft call termination regulations, ICASA solicited feedback from industry players as to what they feel is the best way forward.

Stakeholders expressed many concerns during the public hearings, chiefly around the proposed glide-path and how this may negatively affect their businesses.

“Owing to concerns raised by stakeholders during the public hearings and in the interest of balancing the Authority’s triple mandate of ensuring fair prices to consumers, promoting competition in the ICT sector whilst ensuring a favourable investment environment, the Authority held further one-on-one meetings with those stakeholders that requested the opportunity to do so,” ICASA said.

Full details of the cuts

The final cuts to be published in the Government Gazette today are as follows:

 

While not quite as aggressive as the initially proposed changes, the cuts remain significant compared to what they were before.

ICASA further said that licensees other than MTN, Vodacom and Telkom may qualify for a termination rate higher than the set rate for these three firms depending on the following criteria:

1. Spectrum allocation: A licensee who can prove to the Authority that it faces higher costs based on its current spectrum allocation may qualify for an asymmetric (higher) termination rate. 
2. Economies of scale and scope: A licensee may choose to apply an asymmetric rate if it is an I-ECS license holder and has a share of total minutes terminated in the respective market of less than 25 percent as of June 2009.

A licensee may qualify to charge a higher rate if either or both of the above criteria apply. However, to ensure that those licensees who qualify for an asymmetric rate develop efficient operations over time, the percentage increase above the cost oriented termination rate is fixed and reduces over the period of the glide path to ensure that all licensees will be efficient over time.

A licensee may charge a maximum termination rate of 20 percent above the set rate for the period first March 2011 to 28 February 2012, 15 percent above the set rate for the period first March 2012 to 28 February 2013 and 10 percent above the set rate from 1 March 2013.

“In conclusion the Authority expects that the implemented remedies will redress the existing market failures in the provision of wholesale voice call termination and will foster greater competition,” ICASA said.

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