South Africa’s first interconnect rate cut in eight years has translated into a meager 2% cost decrease for the average business contract subscriber.
This is according to a survey published in May by voice-based telecommunications solutions company Du Pont Telecoms.
Du Pont CEO Graeme Victor concluded that most pre-paid phone users had not significantly benefitted from the decrease in interconnect charges.
“This clearly indicates that if the government and regulatory authorities are serious about reducing the cost of mobile telephony, they need to turn their attention to the retail costs of calls across the board — including for contract/post-paid subscribers,” he said in a press statement.
Interconnection rates are the tariffs that one cellphone operator charges another operator to terminate a call on its network. The cost-based rate for transporting the call to the final destination has been argued by industry players to be between 40c and 25c.
In March 2010, the interconnect charges were reduced from R1,25 to 89c, a 29% cut. This initial rate cut was agreed between operators and Communications Minister Siphiwe Nyanda after political pressure was exerted.
The Independent Communication Authority of South Africa (Icasa) recently announced its own attempt to regulate interconnect costs down to a cost-based rate. Its announced glide path will decrease interconnect charges to 40c by July 2012.
Vodacom spokesperson Richard Boorman told the Mail & Guardian that every 10% decrease in interconnect fee cuts resulted in a loss of R200-million for Vodacom, as announced in the annual Vodacom results on May 17.
“Instead of being able to pass a saving on to customers we actually have to work even harder to offset this drop in revenue,” he added.
Cell C CEO Lars Reichelt denied the accusations of not having passed on the benefits of decreased interconnect rates to customers.
“Cell C is changing the face of cellular telephony in South Africa and was the consumer champion throughout the interconnect process,” he said. Benefits to customers are embedded in reductions in pre-paid, top-up and post-paid rates, he explained.
MTN’s chief corporate service officer Robert Madzonga referred to additional cost factors that needed to be considered when evaluating the customer’s final bill. “The interconnection cost is but one input cost which is considered when calculating the retail rate,” he said.
Another crucial cost to take into account for instance is the cost of entry. SIM starter packs and handsets are relatively cheap in South Africa. In fact, handsets are subsidised, even for prepaid cellphone options, which is not common practice globally.