Interconnect rates, voice prices: what can you expect?

Mobile and fixed termination rates were reduced on 1 March, but to date the savings have not filtered down to consumers as the Independent Communications Authority of South Africa (ICASA) and the Department of Communications (DoC) expected.

To date, only Neotel and a few prominent VoIP providers such as Vox Telecom and Switch Telecoms have announced price cuts.

Vodacom and MTN argue that they are losing money with lower interconnect rates and that there is no relation between mobile termination rates and retail voice call prices.

It is interesting to see what has been said by South Africa’s largest telecoms operators when it comes to the latest wholesale voice termination rate cuts and their retail voice rates (with some tongue-in-cheek comments in italics).

Telkom

Telkom have kept their retail voice rates unchanged thus far despite the lower mobile termination rates which will save the company some money. The company would not comment on their plans in this regard.

Telkom is making a significant loss on interconnect rates, and with the 2010 interconnect rate cut, they passed on the full saving to consumers. This time around Telkom’s own fixed termination rates were cut, making the situation slightly more complicated.

However, Telkom had many months to establish the impact of these rate cuts on its business model. Are they merely cashing in on the lower mobile termination rates for the time being?

Vodacom

Vodacom confirmed that they will not reduce their retail voice prices on the back of MTR price decreases. “Reductions in termination rates do not produce savings for Vodacom to pass on to customers – in fact, the opposite is true,” explained Vodacom spokesperson Richard Boorman.

“Over time, lower termination rates do stimulate competition and experience has shown that this is the mechanism that drives a reduction in call charges,” Boorman added.

Vodacom essentially said that they somehow have to make back the money that they will lose through mobile interconnect rate cuts, and hence cannot drop retail rates.

Vodacom did however admit that competition may force them to drop rates, but obviously there are currently no real competitive forces in this market which it considers significant enough to make such a move. From MTN’s comment below one can see why.

MTN

“MTN has at numerous occasions highlighted that there is no direct link between mobile termination rates and retail prices; some prices go up, some stay the same, and others decline as part of normal competitive activity, not regulatory intervention. MTN investigated the impact that a decline in interconnection revenues had on its operations and have made the appropriate plans to restructure its business model to reflect this,” said Robert Madzonga, Chief Corporate Services Officer for MTN South Africa.

Madzonga did throw in that “MTN will of course continue to offer innovative value for money products and services while at the same time ensuring its network quality and grade of service is not detrimentally affected” and that “MTN remains committed to continually introducing retail solutions to its customers in the Prepaid, Postpaid, and Data categories that allow them to save costs, talk more for less, and access the internet for longer, faster, and more affordably.”

Basically, MTN said the same thing as Vodacom. With the two biggest telecoms players in the country sending a strong message that consumers will not see lower prices due to lower MTRs. Cconsumers may have to wait for another intervention to see significant price cuts.

Cell C

Cell C said that they are still reviewing the various pricing models, and would only be able to make an announcement about retail call rates once this process is finalized.

There is still a bit of hope that Cell C may cut rates, especially since they are allowed to charge 20% higher interconnect rates than Vodacom and MTN.

Virgin Mobile

Virgin Mobile said that they have “no immediate comment regarding your questions [about lower retail voice rates].”

The company did however pad their response with some PR fluff: “except to say that our rates remain very competitive” and that “2011 will see us focusing more on customer focused product innovation…meaning great value products and services that give customers what they have been asking for.”

So, while Virgin Mobile continues to become more and more irrelevant in the local telecoms market, they promise to be working on a few things which may catch consumers’ attention.

8ta

The Telkom powered 8ta has been mum about the latest interconnect rate cuts, sending a strong message that consumers should not expect lower prices from them based on the recent wholesale rate cuts.

This is despite the fact that 8ta is believed to be charging 20% higher mobile termination rates than Vodacom and MTN.

There is still a glimmer of hope that 8ta may come to the party and offer consumers lower rates, but if parent company Telkom’s ADSL philosophy is anything to go by, consumers should not expect any mercy from 8ta.

Neotel

Neotel already cut their fixed call rates in line with the recent wholesale rate cuts, sending a message to their competitors that they are still there and that they are willing to bring competition to the telecoms market.

Despite the fact that Neotel is facing tremendous challenges, and have fallen out of favour with consumers because of their lackluster performance in the residential market, it is encouraging to see that there is still the will to cut their retail voice prices when they receive wholesale savings.

Interconnect rate cuts and retail voice prices: who said what? << Comments and views