Vodacom answers tough MTR questions

The battle surrounding the Independent Communications Authority of South Africa (Icasa)’s call termination regulations 2014 is in full swing, with MTN and Vodacom in one corner, and most other players in the other corner with the regulator.

MTN launched a legal challenge against the new call termination regulations on 12 February 2014. Vodacom followed suit on 26 February 2014.

Telkom and Cell C, which stand to gain the most from Icasa’s call termination regulations 2014, are defending the regulations.

Vodacom answers the tough call termination rate questions

MyBroadband asked Vodacom some of the tough questions related to the call termination regulations, including questions about comments by the company in 2009.

Questions about Vodacom’s statements a few years ago.

Question: In 2009 former Vodacom CEO Pieter Uys disputed that high interconnect costs result in high mobile prices, saying that the single biggest cost of a cellular phone call is not the mobile termination rates, but the cost of transmission lines which mobile operators have been obliged to hire from Telkom. Do you still agree with this statement in hindsight?

Vodacom: The high cost of leased transmission lines was the driver for our major investment in self-provided transmission. This has brought costs down and is a precursor to lower termination rates.

Question: In 2009 Vodacom and MTN warned against a drastic interconnect rate cut, saying that it will harm the local telecommunications industry and may even result in an increase in mobile phone call costs. Do you think the 2010 rate cut harmed the local telecoms industry? Did it result in an increase in mobile phone call costs?

Vodacom: The glide path agreed with the regulator gave us the time necessary to manage the impacts without overly negative consequences.

Question: In 2009 Vodacom warned MPs that the government’s plan to force a cut in mobile phone rates could see nearly a third of the company’s “marginal” customers cut off. Do you still stand by this warning?

Vodacom: The agreement reached with the regulator in the past averted this kind of impact. The level of asymmetry imposed by the regulator in the 2014 Call Termination Regulations could have negative consequences on investment, with a particularly negative impact in the marginal rural areas.

In 2009 Vodacom CEO Pieter Uys said that the actual cost of connecting a call from a rival service was higher than the figures ranging from 20 cents to 60 cents a minute given to the committee. Does this mean that Vodacom started to make a loss on connecting calls from other networks after the lower termination rates kicked in?

Vodacom:See previous comment on the self-provision of transmission.

Former Vodacom CEO Pieter Uys

Questions about Icasa’s call termination regulations, 2014

Question: Vodacom said that it supports lower interconnect rates. Why would you like to see lower interconnect rates?

Vodacom: Cost-based termination rates would naturally come down over time, reflecting technological developments and economies of scale. The cost to connect a call is considerably lower today than it was when mobile termination rates were first set.

Question: Do lower interconnect rates lead to lower prices?

Vodacom: ICASA themselves have stated that there is not a direct link. It’s important to separate the issue of lower mobile termination rates and asymmetry. We’re supportive of lower mobile termination rates. These are applied at the wholesale level and can have an indirect beneficial impact at the retail level. It’s worth keeping in mind that Telkom’s fixed line business will, however, be the biggest beneficiary of these cuts.

Question: What is the cost of terminating a call on your network? Is it lower than 40c per minute?

Vodacom: That’s what a proper cost-based study would determine.

Question: Do you think it was unfair that there was no asymmetry given to Cell C when it entered the market in 2001?

Vodacom: At that point, the vast majority of traffic was from fixed to mobile, with only a small amount of traffic between operators, so asymmetry between mobile operators would have had a negligible impact. Cell C was granted significant asymmetry in 2010 and enjoyed the benefit of this asymmetry for three years

Question: Many people say MTN and Vodacom’s fight against the new call termination regulations is simply about money – you will lose money, and Cell C and Telkom will be able to compete more effectively against Vodacom and MTN. Are they wrong?

Vodacom: The issue at hand is simply about process. We believe that it’s entirely reasonable to expect the regulator to follow the correct process in determining cost-based termination rates.

Question: Is Vodacom’s network quality going to decline through a lack of investment if the new MTRs (in their current form) come into effect?

Vodacom: We estimate that the impact in the first year could be as much as R1 billion, which would have an impact on our capital investment budget.

Question: Do you think it is fair that you have asymmetry over Telkom’s fixed line services? Also, do you think the large asymmetry since 2001 over Telkom was fair?

Vodacom: The basis of a mobile termination payment is to recompense a network for the use of their infrastructure when connecting a call. There has historically been a wide differential between the costs to connect a fixed line call and a mobile call, which is the basis for asymmetry. Telkom is actually the largest beneficiary of the current round of cuts in mobile termination rates, which does somewhat call into question how effective this step is in addressing mobile costs.

Question: Communications minister Yunus Carrim said that “What they (Icasa) have done serves the country’s interests and of course we’d like to see these rates contribute to consumers and businesses paying less to communicate, and benefiting economic growth and job creation over time.” Is Yunus Carrim wrong? If not, why try to stop the new termination rates which Carrim said is in the country’s interest?

Vodacom: See previous response on process.

More on the call termination regulations, 2014

MTN hits back in termination rate fight

MTN stamps on low prices: Cell C CEO

Cell C to fight MTN’s MTR application