Time to get tough
Its failure to rein in cellular heavyweights Vodacom and MTN concerning their anti-competitive antics is just two reasons the public doubts its ability to regulate SA’s telecoms sector or level its highly skewed playing field.
The public hearings on asymmetrical interconnection – call termination charges – has again presented the regulator with an opportunity to cut the high costs of voice calls in SA. Asymmetrical interconnect refers to the fees telecoms operators charge each other to send calls between their networks and the reason why a Vodacom to Cell C call costs more than one between two Vodacom subscribers.
There are two opposing camps in this debate: on the one side is Cell C, Virgin Mobile and consumers looking for prices to be dramatically cut; in the other camp MTN and Vodacom are trying to retain the status quo.
Over the past eight years interconnect fees have increased by 545% from 20c in 1999 to 129c in 2007. The fact that Cell C and Virgin Mobile have far fewer subscribers than their competitors, means that most of the duo’s outbound calls are carried on competing networks, prompting them to cede a significant portion of their revenue. For example, every cellphone call from a Cell C subscriber to one on Vodacom nets Vodacom R1,29c in interconnect revenue.
Virgin Mobile CE Peter Boyd questions the rationale used in arriving at current interconnect charges. “How do you justify the 554% increase in interconnect charges over an eight-year period?”
That the interconnect regime is reason for the higher telecoms costs is indisputable. Boyd argues that a reduction in wholesale cellular fees would help foster true competition in the SA market, as it would translate to lower communications costs. “The interpretation is quiet basic. We’ll be able to pass on benefits of lower costs to consumers.”
Should wholesale call termination charges become cheaper, Cell C CE Jeffrey Hedberg assures consumers that SA’s smallest operator would instantly drop its retail prices. Proving the viability of that theory, Cell C has significantly reduced its rates on calls made within its network. However, Hedberg is quick to attribute that achievement to the fact that Cell C had control of its network.
With Vodacom and MTN having said to have raked in combined revenues in excess of R15bn in interconnect fees over the past four years, it’s unlikely that they would give in to regulatory intervention without a fight – both being renowned for their propensity to litigate whenever their revenue base is encroached.
Citing its experience in Tanzania, where that country’s regulator is alleged to have meddled in its pricing model, Vodacom’s Government relations and regulatory executive Phakamile Pongwane warns Icasa of the unintended consequences of intervening in SA’s interconnect saga. “We now don’t have much money to spend on network expansion in that country.”
How Icasa’s intervention could replicate Vodacom’s woes in SA Pongwane doesn’t say, but his argument is that SA’s overall cellular market is built on the balance and interrelationship between wholesale and retail charges. Therefore by lowering the wholesale price, Icasa could effectively be denying lower income earners access to cellular connection, as the revenue from wholesale call termination is channelled to subsidising the market’s lower end.
MTN regulatory head Nkateko Nyoka argued on similar lines, saying that interconnect charges mainly subsidise calls to lower end MTN consumers. Therefore MTN could only afford to keep consumers in the lower end of its market due to the profit it made from call termination charges. Says Nyoka: “If the interconnection fees were dropped, nobody would want to serve the poor and currently unconnected people.”
Whether Icasa will heed Cell C, Virgin Mobile and consumers’ calls that it must intervene in the interconnect regime remains to be seen. However, given its perceived reluctance to engage Vodacom and MTN in a legal spat, sceptics could be forgiven for assuming that Icasa may have already consigned any submissions to its dustbin.
Whatever the merit in the duo’s argument, Icasa’s verdict – particularly how soon it responds to their challenge – will certainly reflect on both its reputation and credibility.
Finweek
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