How we helped fund the Vodacom and MTN networks – Telkom

Telkom helped subsidise the massive growth of Vodacom and MTN, and is still effectively subsidising the operators, said Telkom CEO Sipho Maseko.

Speaking at a media briefing this week, Maseko said Telkom paid over R70 billion to Vodacom and MTN in call termination fees over 20 years.

Since the launch of mobile networks in South Africa in 1994, the regime of wholesale call tariffs was skewed in favour of Vodacom and MTN, he said.

These call termination rates (CTRs) are the fees operators pay one another when a subscriber on one network places a call to a client of another network.

Maseko said that before the ICASA started regulating call termination rates, it was around R1.22 to terminate a call on a mobile network – and R0.26 if you terminated on a Telkom landline.

In all, Telkom contributed around 10-times the CTR revenue to Vodacom and MTN than it received, peaking in 2008 at R5.4 billion.

Telkom only received R577 million in interconnection revenues. None of the figures quoted have been adjusted for inflation, added Maseko.

One factor not taken into account in the calculation is that Telkom held a 50% stake in Vodacom until 2008. The other 50% of the shares were held by Vodafone.

In November 2008, Telkom sold 15% to Vodafone for R22.5 billion, making it the majority shareholder. Telkom’s remaining 35% stake was listed on the Johannesburg Stock Exchange.

Maseko told MyBroadband that the profits contributed by Vodacom to Telkom’s bottom-line during that period would not have made up for the massive discrepancy in call termination revenues, however.

Vodacom and MTN were aggressively investing in expanding their networks, and most of the money would have been used for capital expenditure, he said.

Even though Telkom held a significant stake in Vodacom for almost 15 years, that doesn’t change the fact that CTRs were used to subsidise the expansion of South Africa’s biggest mobile networks.

ICASA regulation

When ICASA introduced the first call termination regulations on 1 March 2011, councillor Thabo Makhakhe stated that the high termination rates were necessary to allow substantial investment in the mobile networks.

This was so that Vodacom and MTN could achieve their rollout obligations of providing coverage to over 90% of the South African population.

“This regime also supported the development of greater data services, a critical necessity in the development of a knowledge economy,” said Makhakhe.

Maseko said the regulator was asleep at the wheel at the turn of the century, however, and should have noticed that Vodacom and MTN had become roughly the same size as Telkom.

ICASA should have taken steps in the early 2000s to adjust the discrepancies between the mobile and fixed-call termination rates, but instead allowed the unbalanced regime to continue in the name of fostering greater competition.

This should not continue in the next round of call termination rate regulations and Telkom will suggest that ICASA amend its proposed regulations, said Maseko.

The suggestion will include higher asymmetry for smaller entrants, and no difference in call termination rates between fixed and mobile locations.

Additionally, Maseko said ICASA must consider the impact of its regulations on job creation, competition, and investments.

Telkom stopped short of prescribing how much asymmetry it should receive.

Now read: What to do when Telkom won’t cancel your line

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How we helped fund the Vodacom and MTN networks – Telkom