Vodacom, MTN’s fears now a reality

The Independent Communications Authority of South Africa (Icasa) unveiled the new call termination rates on 29 January 2014, which will see significant cuts to mobile termination rates over the next three years.

Call termination rates are what one operator charges another operator to terminate a call on its network. For example, if a Vodacom subscriber makes a call to an MTN subscriber, Vodacom will pay MTN to terminate that call on its network.

The current termination rate for mobile calls is R0.40 per minute, while fixed calls are charged between R0.19 and R0.12 per minute.

The latest mobile termination rates increases the asymmetry between Vodacom and MTN and the smaller operators – Cell C and Telkom Mobile.

Asymmetry means that the large operators (Vodacom, MTN) will pay the smaller operators (Cell C, Telkom Mobile) more to terminate a call on their network than the other way around. This will help the smaller operators to compete more effectively against the larger players.

Icasa’s new regulated rates for call termination are provided in the table below.

Vodacom, MTN’s fight comes to nothing

When Icasa announced in 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, Vodacom and MTN came out swinging.

MTN warned that a sudden reduction in mobile termination rates can reduce the company’s incentive to invest heavily in its network in rural areas and continue its subsidization of mobile phones.

Vodacom in turn said that the reduction in mobile termination rates proposed by ICASA can have a profound impact on both their business and those of their suppliers, franchisees and other stakeholders.

Vodacom further slated Icasa’s proposal to alter the current rate of asymmetry from a 10% differential to rates ranging between 95% and 160% over three years.

These warnings from the two largest mobile operators came to nothing, and the regulator’s final mobile termination rate regulations copied the draft proposal tabled in October last year.

Cell C welcomes regulations

Mothibi Ramusi, Cell C’s head of regulatory affairs, welcomed the new call termination regulations, saying that it will be good for competition in South Africa.

He said the latest cuts will place smaller mobile operators such as Cell C and Telkom Mobile in a better position to take on big guns like Vodacom and MTN, and will ultimately benefit consumers.

In an official statement from Cell C, acting CEO Jose Dos Santos said that the new call termination rates come as a relief. “We have over the last 18 months committed ourselves to leading price competition even at the expense of our own margins, while motivating to ICASA for pro-competitive relief,” Dos Santos said.

“Without this intervention it was likely that the South African market would have continued to have been an effective duopoly to the detriment of the consumer, industry and the South African economy,” said Dos Santos. “With the support of this regulation, the mobile market will continue to become more competitive on a sustainable basis.”

Cell C said that by increasing its share of the market and putting further pressure on the dominant competitors, it is confident that it can drive access to more affordable communications for all South Africans, even those not on its network.

This is not a victory for consumers: Vodacom

Vodacom is not happy about the call termination regulations, saying that their recommendation for a “reasonable reduction glidepath” was not accepted.

“Vodacom had also made representations to ICASA about the proposed asymmetry structure, which is now more aggressive to the detriment of Vodacom’s customers and business,” said Vodacom.

“We feel that the level of asymmetry is unjustified and that there is no clear basis for the differential. This asymmetry is clearly a subsidy for the smaller operators.”

“We will be reviewing the potential impact both internally and externally. We will be in a better position to comment on the steps we will need to take to adjust our business model once that review has been completed,” said Vodacom.

“We believe that the outcome today has been reached without following due process. A cost-based study, which is a prerequisite before reaching this type of decision, has not been conducted and shared with us. We will be considering our options in relation to this.”

Vodacom CEO, Shameel Joosub said that he wished that he could say that this is a victory for the consumer, but it is far from it.

“This is a subsidy which in effect means that Vodacom will be charged more to call Cell C and Telkom Mobile than the latter will be charged to call Vodacom. This prejudices Vodacom’s customers, and rewards those who have not invested in their networks at the expense of those who have,” said Joosub.

“We will consider our options in order to do our best to protect our customers and ensure that South Africa continues to get the network investment that it needs and deserves.”

Telkom welcomed the new call termination rates

Telkom welcomed the new call termination rates (CTRs), saying that it will substantially contribute to reducing the cost of communication and the consumer will be the biggest beneficiary.

“This brings the market closer to parity in termination rates, supporting the move to convergence between fixed and mobile services. Telkom has for many years subsidised the dominant mobile operators, and this move will begin to level the playing field,” said Miriam Altman, Head of Strategy at Telkom.

“Telkom will pass on reductions to consumers and will communicate these savings once it has fully assessed the impact of the regulations,” said Altman.

MTN was asked for comment on the new call termination regulations, but the operator did not respond by the time of publication.

New termination rates provide for greater competition: Minister

The Minister of Communications, Yunus Carrim, has also welcomed Icasa’s new termination rate regulations, saying that the Ministry believes it will serve the country’s interests.

“We would like to see these new rates contribute to consumers and business paying less to communicate and benefitting economic growth and job creation over time,” Carrim said. “The high costs to communicate have deterred global and domestic investment in this country.”

Carrim said that these rates provide for greater competition which they expect to lead to reductions in the cost to communicate.

“We understand that ICASA consulted extensively with all the parties and we feel that they should accept the outcomes. What some of them may lose in immediate profits will be exceeded by what they will gain in the medium and long term,” Carrim said.

More on call termination rates

New call termination cuts announced

Drop termination rates to 10c next year: Knott-Craig

New call termination rates: expect backlash