New call termination rates: expect backlash

While the new draft call termination regulations from the Independent Communications Authority of South Africa (Icasa) were positively received by Cell C, other operators are reserving comment.

However, O-Tel Telecoms CEO, Wapa deputy chair, and head of Ispa’s operators workgroup, Mohammad Patel said he expects opposition from MTN and Vodacom.

Icasa announced on Friday, 4 October 2013, that it wants to cut the costs of terminating a call on a mobile network to R0.10 over the next 3 years.

Under the proposed regulations, smaller operators such as Cell C and Telkom Mobile will be afforded preferential termination rates for 6 years, after which their rates will also be R0.10.

Termination rate glide path To Vodacom, MTN To Cell C, Telkom Mobile To fixed, within ON area code To fixed, between ON area code
Current R0.40 R0.44 (10% asymmetry) R0.19 R0.12
2014 (1 March) R0.20 R0.39 (95% asymmetry) R0.19 R0.12
2015 (1 March) R0.15 R0.33 (120% asymmetry) R0.19 R0.12
2016 (1 March) R0.10 R0.26 (160% asymmetry) R0.19 R0.12
2017 (1 March) R0.10 R0.20 (100% asymmetry) R0.19 R0.12
2018 (1 March) R0.10 R0.14 (40% asymmetry) R0.19 R0.12
2019 (1 March) R0.10 R0.10 (0% asymmetry) R0.19 R0.12
Fixed-line asymmteric termination will remain 10%

Regulatory expert Dominic Cull said that “bold” is probably a good way to describe Icasa’s proposed changes.

Feedback from Telkom on the draft regulations was mostly positive, though a spokesperson for the company said they must still analyse Icasa’s proposal.

“Telkom is of the view that the current termination rates are prejudicial to Telkom and welcomes the review of the termination rate regulations,” the spokesperson said.

“The company will therefore analyse the draft regulations that were published and pronounce on the proposed regulation at an appropriate time,” Telkom said. “Telkom will also participate in the process through submitting its comments to Icasa.”

MTN South Africa’s acting chief corporate service officer, Fusi Mokoena, said that they too were reviewing the document and will file a response on the due date once they have worked through it.

“MTN will closely examine the contents of the proposed Regulations and analyse its potential regulatory and economic impact,” Mokoena.

A Vodacom spokesperson said that they are also studying the proposed changes and will comment in due course.

Objections from Vodacom and MTN anticipated

Mohammad Patel
Mohammad Patel

Asked for his take on the proposed termination rate cuts, Mohammad Patel said that it is a promising initiative from Icasa to lower telecommunication costs for the South African Public.

He added that he expects Vodacom and MTN to challenge the rate cuts because it will have a significant impact on their bottom-line.

This in turn will affect their staff complement, sponsorships, and other financial obligations, Patel said.

“What Icasa has to do is to ensure that these cost savings are passed on to the public,” Patel said.

He said that only Cell C and Telkom Mobile have cut their profit margins by launching products with call rates at 99c, while larger players did not reduce their rates when the latest rate cut (to R0.40) kicked in.

Patel said this means the profitability of the large players have increased. For example, MTN now has to pay less to Vodacom whilst keeping their call rates as high as R2.70/minute, Patel said.

Lower termination not all-good for new entrants either

“On the other side of the coin, the lower termination rate is not an all rosy affair for entrants,” Patel said.

He said that the lower call cost does mean that new players pay the incumbents less, but it also means that their call rates margin will reap lower profits.

“This will affect their cash flow and turnover which is important in its [capital expenditure] for growing the network,” Patel said. “They will need to look at getting the income from other avenues which may result in higher rental fees or other methods to gain profitability,” he added.

Patel said that Icasa has a challenge on its hands, and should lobby government for some sort of subsidy to entrants that meet Icasa and government’s requirements and are able to provide workable business plans.

Speaking in his capacity as the leader in the operators working group at the Internet Service Providers’ Association of South Africa (Ispa), Patel said he will be working with other ISPs to submit their opinion to Icasa on behalf of Ispa.

He said that he expects to submit supportive documents to Icasa after they have had their discussion.

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New call termination rates: expect backlash