Government’s war against excessive pricing moved into the area of telephone call charges recently, with regulator the Independent Communications Authority of South Africa (Icasa) putting the spotlight on how so-called interconnect fees raise both landline and mobile costs.
Mobile call costs could be slashed by 30% if Icasa wins its battle with landline and mobile operators, according to an independent expert.
Interconnect fees currently run at R1,25 per cellphone call. In India, by comparison, this fee is just $0,03 (about 20c).
Interconnect fees were 20c in 1994, but have risen by 635% since then to R1,25 at present.
One study found peak local calls were the most expensive of 15 countries sampled, being almost 200% more expensive than the average price.
If Icasa succeeds, the new dispensation will cost dominant incumbents Telkom, Vodacom and MTN billions in revenue and save consumers the same billions in call charges.
Interconnect fees are the rate that a telecommunications company of charge another operator to terminate a call on its network.
Icasa fired the first shots in June last year when it announced its intention to declare Vodacom and MTN as dominant players or “major operators” and then published its draft interconnection guidelines. This definition would require the companies to provide interconnections with other operators at cost.
MTN and Vodacom are fighting a rear-guard action, taking the matter to the high court. A date is currently awaited.
An Icasa draft document on interconnection guidelines aims to make agreements more transparent and to force major operators to offer interconnection at cost.
According to the guidelines, a major operator is defined as an operator which has at least a 35% market share. This means that Telkom is considered a major operator in the fixed-line sector and MTN and Vodacom in the mobile sector.
During Icasa’s public hearing on the draft guidelines, both Vodacom and MTN argued that the regulator did not have the legislative power to regulate interconnection prices and had not done a satisfactory market study to declare either of them a major operator.
They said the South African cellphone market was highly competitive and there was no need for regulation.
They also pointed to the imminent promulgation of the Electronic Communications Bill, which they said would have a major restructuring impact on the sector, rendering the current process obsolete.
Icasa councillor Zolisa Masiza disputed claims of a competitive market, raising the fact that interconnection rates have risen by 635% in 11 years.
The Vodacom submission argued that: “The power to divide licensees into categories of ‘major operators’ and others, and then impose restrictions on the interconnect charges recoverable by major operators, if it is to exist, must be derived from the Act. The Act confers no such power on the authority.”
“Icasa is on the verge of restructuring the industry through interconnection guidelines that would probably be the most intrusive regulations deployed for mobile operators anywhere in the world,” said MTN’s general manager of regulatory affairs Graham De Vries.
“You take a fly swatter to a fly, not a hammer.”
Icasa’s manager of telecommunications Nomvuyiso Batyi said its position is quite simple. “We do have the power to regulate interconnection costs.”
Genesis Analytics Robert Lipschitz supported Icasa’s view. “They certainly seem to have the legal right,” he said. “If Icasa declares an operator, as a major operator they have the ability to impose pricing methods.”
Lipschitz said the guidelines seem appropriate and are basically in recognition of certain operators having monopolistic powers over their networks. “It seems more than fair.”
International price comparisons conducted by Genesis Analytics had shown that telecommunications prices were excessive and any market where two companies control a 90% share is cause for concern, said Lipschitz.
According to a report, by Genesis Analytics, titled Reforming Telecommunications in South Africa, the actual costs of interconnection between mobile operators may be 30% less than the current cost of R1,25.
At present, interconnection fees account for 66% of what consumers pay for a fixed-line-to-mobile call and 11% of a mobile-to-fixed-line call.
The report argued that high interconnection costs have prevented Cell C from gaining a fair share of South Africa’s booming cellphone market.
Since Cell C entered the market in 2001, the number of subscribers had more than doubled from 11-million to 25-million, yet Cell C had only managed to gain 10% of the market.
The report stated: “The larger networks have a greater influence over the prices of the smaller networks because interconnection rates are imposed on a far greater amount of the latter’s calls. Therefore, even if it was a lower cost network, its rates would still be higher than those of its competitors.
“These factors have meant that Cell C is a far less effective competitor than it would have been if interconnection rates were priced at cost, and that MTN and Vodacom in effect continue to determine its call rates,” the report said.
According to the report, the mobile interconnection rate paid by Telkom is 75% of its fixed-to-mobile charge and if, for argument’s sake, the cost of interconnection was taken at half the current rate, then Telkoms fixed-to-mobile costs could decrease by 38%.
“Fixed-to-mobile calls account for only 14% of all call minutes from Telkom phones, but the high price means that they account for 41% of Telkom call revenues,” said the report.
The report argues that a 38% reduction in fixed-to-mobile calls would result in a decrease of 16% in the average Telkom phone bill.
Indian mobile success story
India’s favourable regulatory climate and the aggressive use of wireless technology have driven the explosive growth the country’s cellphone market is experiencing.
According to a report titled Wireless Communications In India: Explosive Growth Targeting Sustained Momentum, India is currently the sixth-largest market in terms of cellphone subscribers and will be second only to China by 2010.
The report prepared by electronic research firm, iSuppli, says that in 2005, the Indian market grew by 47%, to reach 75,3-million subscribers, and that the total market was worth $5,8-billion.
The report predicts that, by 2010, 23,9% of the Indian population will be cellphone subscribers — a total of 278-million consumers.
“The drivers of this remarkable growth include India’s favorable regulatory climate, falling tariffs, slow growth in the deployment of wired telecommunications infrastructure and the wireless carriers’ aggressive strategies to reach new areas of the country,” said iSuppli analyst Jagdish Rebello.
India’s wireless service rates are among the lowest in the world, having fallen from a peak rate of $0,50 per minute in 2003 to the current rate of $0,02 cents per minute. — Lloyd Gedye