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MTN, Vodacom take Icasa to court over rate cuts decision

Sapa

The cellphone giants are taking the communications authority to court over its plan to cut call interconnect rates between mobile networks.

Lower cellphone rates could result in a deterioration in service and signal if cellphone companies cannot afford to maintain their infrastructure. (Oupa Nkosi, M&G)

Cellphone giants MTN and Vodacom are taking Icasa to court on Tuesday over the communication regulator's plans to slash mobile termination rates.

The two companies approached the Johannesburg high court on an urgent basis to stop the Independent Communications Authority of South Africa (Icasa) from implementing a regulation on mobile termination rates.

Termination rates are the fees companies charge each other to connect calls made between their networks.

The rates were expected to come into effect on April 1. MTN and Vodacom want the court to permanently scrap the regulation.

The two said attempts by Icasa to set termination rates for 2014 at 20c for them and 44c for the other cellphone firms were unlawful on a number of grounds. They said the figure of 20c was arrived at irrationally and that the 44c rate meant for smaller players was not based on cost.

Icasa said the rates had driven up the cost to consumers, making South Africa one of the most expensive places to use a cellphone.

The national regulator said the 20c rate was justifiable according to an independent expert and that the cost was not what determined the 44c calculation.

Domino effect
Experts have warned that MTN and Icasa's court case contesting reduced interconnect call rates will leave no one in the cellphone sector unaffected.

"This is the first time that MTN and Vodacom have been staring down the barrel of a gun," said analyst Nadim Mohamed. "Icasa is obviously serious about these changes and, as far as I can remember, this is the first time a case this big against a regulator has made it to court in South Africa. Normally it's resolved internally within Icasa."

Steven Ambrose, the chief executive of consultancy Strategy Worx agreed, saying it marks a new "chapter" in the relationship between the networks and the regulator, and indirectly with the government, where previously issues were resolved through consultation.

Customers should benefit from a lower interconnect rate, with cellphone companies likely to end up in a price war. But cheaper prices will take a while to filter through to consumers, said Ambrose.

Another potential of the enforced lower interconnect rate is a decrease in service provision. Less profit for the major companies could result in a deterioration in customer service as well as signal if infrastructure cannot be maintained. – Sapa, additional reporting by Chantelle Benjamin

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