Call costs won’t necessarily drop with lower interconnect rates

...the price reductions will start from the smaller players who will be more competitive and flexible in their pricing, and this competition will result in a overall re balancing of cellular costs over the next year.
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Hmmm, really?

Aren't the high interconnect rates there to make it virtually impossible for new "players" to undercut the bigger ones - especially Vodacom and MTN?
 
I'll say it again ;)

Shake&Bake said:
Well, I for one can't think of how the current 30c is going to translate or be passed onto the consumer at the moment.

I doubt there is going to be any immediate impact on pricing - or there may well be, by simply cutting their margins a bit as those margins have always been inflated anyway.

But if government and ICASA manage to get it down to 60c over time, then it should really translate into savings.

Thing is to reach that 60c margin is going to take time and the operators are obviously going to go out of their way to reorganize their pricing structure that it's once again going "con" the unsuspecting consumer.
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And as for the Bold section in that ^ post, VC are already dropping hints to it.

Vodacom however warned that an arbitrary and ill-considered intervention to reduce cellphone interconnection rates could have unintended consequences, like the disconnection of marginal cellphone customers, higher access charges, less discounts for on-net calls, higher SMS and data charges, and increased retail voice charges for prepaid customers.
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As for:

“A drop in interconnect rates does not necessarily lead to a reduction in retail call charges,” said Victor. “In Israel, a government-led cut in interconnect rates actually resulted in a rise in overall call costs as operators scrambled to make up for lost revenues. There is no reason why the same could not happen here.”
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It's simply them (the operators) running around to keep the bank balances heightened. And yes, there is no reason why it can happen here :rolleyes:

I like this commentary though:

This view is echoed by World Wide Worx MD Arthur Goldstuck who says that ICASA “can simply declare a new interconnect rate.”

“We have been calling on them to do so since 2005. The legal arguments against doing so do no hold water, as neither ICASA nor the networks entered a public process for increasing the interconnect rate, and it occurred entirely invisibly to the public,” says Goldstuck.
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Thing is ICASA should just regulate the hell out of them - I can't care for the disastrous consequences - we're already in a disaster! *frustration*

Israel? Take a look at what the EU and Ofcom are doing in that part of the world.

http://www.ofcom.org.uk/consult/condocs/mobilecallterm/update/

Some of Ofcom's considerations for the UK Market:

Read the rest of it (.pdf) here.

Possible regulatory approaches for MCT (Mobile Call Termination)

• Deregulation – removal of all termination regulation from mobile operators.
• Long Run Incremental Cost + (LRIC+) – charge control set broadly on the basis of the same cost standard as it is today.
• Long Run Marginal Cost (LRMC) – revised charge control methodology with no allowance for recovery of common costs, broadly the approach recommended by the EC.
• Capacity Based Charges (CBC) – a different approach to setting the structure of termination charges based on the capacity required for termination.
• Mandated Reciprocity – set mobile changes to match the rates set for fixed operators.
• Mandated “bill and keep” (B&K) – termination charges effectively set at zero.

The most important issue is how each approach affects consumers

1.15 We consider that all of the options identified above, with the possible exception of the deregulatory option (the outcome of which is uncertain) is likely to reduce the current pence-per-minute charge for MCT.7

1.16 These effects are considered further in section 6. In summary we consider that: Such a reduction would have different effects on consumers, competition and commercial practice in the industry.

• lower mobile termination rates are likely to benefit consumers overall (both fixed and mobile) because operators will have greater retail pricing flexibility. We would expect operators to be able to offer consumers a wider variety of retail packages and tariff structures;

• while some low-usage customers may be worse off (if termination rates are reduced) there may be more appropriate policy mechanisms to ensure that these and other vulnerable consumer groups are adequately protected;

• lower termination charges might ameliorate possible competition concerns over on/off-net price differentials;

• lower mobile termination charges are likely to lessen possible concerns over discrepancies between fixed and mobile termination rates; and

• the commercial impact of lower termination rates on UK operators, particularly regarding the potential for discrepancy of effect between fixed and mobile operators, needs careful consideration.
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Well for a start, even if the cell networks keep their current per minute rates there is no reason why Telkom, Neotel and VOIP operators won't immediately drop their own call rates to cellular mobile numbers.

Whereas I now almost always call a cellphone from my own cellphone, it might be a lot cheaper in future to use a land line. In fact it might make having a land line, other than for ADSL, worthwhile again. With lower interconnect, Telkom could even add cellphone calls into their Closer packages.

So mobile call costs might not drop immediately, but cell operators will most certainly have lost their anti-competitive muscle, and will have to start fighting for business on level terms.
 
Vodacon and mtn won't drop their prices at first, no. But Cell C and Virgin Mobile will now have a 60c buffer to play with, money that they were mostly paying to vodacon and mtn. Now that need to pay less to make cross network calls, they can charge less for those calls. They don't loose out, vodacon and mtn loose out.

Price war will ensue and I hope Cell C grabs a large chunk of the market :D
 
There is price fixing going on there, no doubt about it.
 
It is very easy - regulate that all cell calls will be 60c cheaper with immediate effect. Don't care about how the cell companies cross subsidise their revenues. And if they don't want to play in this market let them up sticks and move on.

Now you have a new baseline for call charges - they can apply for increases or reductions again next year.
 
CellC needs to take the ball and run with this - If they immediately pass on the savings to customers they will score some major points.
 
Albereth said:
It is very easy - regulate that all cell calls will be 60c cheaper with immediate effect. Don't care about how the cell companies cross subsidise their revenues. And if they don't want to play in this market let them up sticks and move on.

Now you have a new baseline for call charges - they can apply for increases or reductions again next year.
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I think this is exactly what is going to happen. People seem to forget that at the end of the day ICASA determines cell phone charges. If government orders them to cut cell phone charges it really isn't so hard to do.
 
Pilgrim said:
Vodacon and mtn won't drop their prices at first, no. But Cell C and Virgin Mobile will now have a 60c buffer to play with, money that they were mostly paying to vodacon and mtn. Now that need to pay less to make cross network calls, they can charge less for those calls. They don't loose out, vodacon and mtn loose out.

Price war will ensue and I hope Cell C grabs a large chunk of the market :D
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bwana said:
CellC needs to take the ball and run with this - If they immediately pass on the savings to customers they will score some major points.
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I realise I am becoming repetitive but please realize that a reduction in interconnect costs of 60c will not represent an immediate saving of 60c per call for either CellC or Virgin. Wholesale termination rates are a "zero sum game" and as a reduction in this rate will not magically provide any of the operators with a saving that they can pass on to the customer.

Edit: Expect of course Telkom due to the current asymmetrical rates.
 
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Speedster said:
I think this is exactly what is going to happen. People seem to forget that at the end of the day ICASA determines cell phone charges. If government orders them to cut cell phone charges it really isn't so hard to do.
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We do not live in a police state yet:mad:
 
call costs will drop.

CELLC and VIRGIN no longer have to pay R1.25 per minute to vodacom, so they will lower their call rates
 
mikef said:
I realise I am becoming repetitive but please realize that a reduction in interconnect costs of 60c will not represent an immediate saving of 60c per call for either CellC or Virgin. Wholesale termination rates are a "zero sum game" and as a reduction in this rate will not magically provide any of the operators with a saving that they can pass on to the customer.

Edit: Expect of course Telkom due to the current asymmetrical rates.
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So if Cell C spends more on outgoing interconnect fees than they recoup from incoming calls to their network this reduction wont have any effect? :confused:
 
mikef said:
We do not live in a police state yet:mad:
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But we do live in a state where monopolies (or oligopolies) are meant to be regulated. Firms should not be allowed to charge monopoly profits and up to thus far they have been able to. ICASA (after a kick in the butt by parliament) are finally waking up.
 
How else can these guys feature on the world stage - obviously the African market has shown that we don't mind paying whatever.
 
bwana said:
So if Cell C spends more on outgoing interconnect fees than they recoup from incoming calls to their network this reduction wont have any effect? :confused:
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Yes it will - but only to the extent of the difference which is minor in the big picture.

My understanding of the "zero sum game" is as follows:
In the scenario where there is a single symmetrical interconnection rate between all operators in the telecommunication marketplace and on the assumption that calls get terminated on the individual operators networks in proportion to their respective subscriber market share percentage the net cash flow from interconnection charges would be zero for each operator. In other words, whether you are a small operator with one thousand subscribers or a large operator with sixty million subscribers or anything in between, your interconnect revenue due to you from your competitors for their subscribers calls terminating on your network would always exactly equal the amount you have to pay to them for your own subscribers calls terminating on their networks. At first glance this might not seem logical but it is a mathematical fact - the so called “Zero sum game”. (please do the maths if you wish to dispute this)
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It seems everybody is still missing the obvious here. There is a simple reason parliament wants to see Vodacom's costing structure. The retail price is made up of the following major components: fixed costs, marginal costs to initiate a call (these include Telkom costs) and marginal costs to terminate a call (call termination can be on the same network, or a different network). When terminating a call on a different network, a fee is paid across to the other network. Any premium charged on any of the components would amount to a marginal profit on that component.

If the cost of mobile termination (interconnect) is (as has been suggested in the media) closer to 30c than R1.25, each operator makes 95c per minute profit on the termination fee. Bringing this fee down will allow (and ICASA can enforce) an instantaneous and equal decrease in the retail price.

Some are arguing - but what about the profit margin of Vodacom / MTN etc - well that is exactly the point. These firms have been making monopoly profit and government has finally decided to stop this. Their profits will drop, but that is the whole idea :)
 
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