Move over Skype, here comes Skaap

Regulator Icasa, Cell-C, second network operator Neotel and the country’s internet service providers are putting new energy into tackling the interconnect regime that rakes in R5-billion to R6-billion a year each for cellphone giants Vodacom and MTN.

The Independent Communications Authority of South Africa (Icasa) and most of these smaller tele-communications players support a new regime where interconnection fees will be charged at cost.

A study conducted last year found that cellphone rates could be reduced by as much as 30% if interconnection was regulated to cost.

Interconnection fees are the rates that a telcoms company charges another operator to terminate a call on its network. In other words, for example, to put a call from a Vodacom customer through to an MTN subscriber.

Icasa councillor Tracy Cohen says the regulator is going to proceed with a cost-based interconnection framework. A market study is almost complete and Icasa is hoping to publish it and new draft regulations for comment by the end of the year.

Interconnect fees were 20c in 1994, but have risen by 635% since then to R1,25 at present. In India the current interconnect charge is the equivalent of 20c.

Cell C’s chief commercial officer, Jim Courtney, says his company fully supports a cost-based interconnect regime because it is disadvantaged by the current regime, where MTN and Vodacom used cheaper on-network calls to lock in customers.

Courtney says the dominant operators have a huge market share of South Africa’s cellphone subscriber base and therefore the cheap on-network call is a hugely attractive offering.

“We are being disadvantaged because we are paying the same rates to the competition that we are receiving,” says Courtney.

Courtney says Cell C is not the only one disadvantaged. He says the VANS, value-added network services, which are moving into the voice market, cannot interconnect.

Internet Service Providers’ Association (Ispa) chairperson Gregg Massel says this is a major problem for the new, smaller operators.

He says that the current interconnect rates are way too high and that Ispa would support a cost-based interconnect regime.

“The mobile operators have made no secret about the fact that they make a lot of profit from interconnect,” says Geoff Rhemet from Internet Solutions. He says the established operators will not move on this issue unless forced and called on Icasa to publish the long-awaited draft regulations. “It is now a matter of urgency.”

Neotel has also called for Icasa to step in to regulate interconnection.

One industry stakeholder who agreed to talk to the Mail & Guardian on condition of anonymity, said MTN and Vodacom each make R5-billion to R6-billion each year, just from interconnection revenue.

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.

Genesis Analytics’ Robert Lipschits says the current interconnect regime effectively means the cellphone operators have a monopoly on calls that terminate on their network and this is a problem.

“Most countries do operate like we do but they deal with this problem through regulation,” says Lipschits. “The UK, for example, has a very strict regulatory regime where they force operators to price interconnect at cost.”

“Icasa first has to define markets, evaluate if certain operators have significant market power and then publish the draft regulations.”

Lipschits says it is very difficult for the regulator to get a handle of what the cell operators’ actual interconnect costs are — and Cohen agrees.

She says the financial statements the operators supply in September will help with this but admits there is leeway for costs to be fudged.

“It’s very easy to argue that you have costs, but it is difficult for the regulator to get a handle on what the mobile operators’ costs are,” says David Gale from internet service provider Storm.

Icasa announced in June last year its intention to declare MTN and Vodacom “major operators”, which would have forced the two dominant operators to provide interconnect at cost.

However, MTN and Vodacom challenged this move in a court application, which is still ongoing and Icasa’s draft regulations have been placed on hold due to the need for a full market study and the promulgation of the Electronic Communications Act.

Vodacom’s chief operating officer, Pieter Uys, says the mobile operator does engage with VANS regarding interconnect agreements and that a number of agreements have already been reached. He says Vodacom’s revenue from interconnect is published in its annual results every year.

Cost-based interconnection is but one of the remedies that could be used by the regulator to intervene, but he did not provide details of any other remedies.

Telkom spokesperson Lulu Letlape said that Telkom was currently engaged in interconnect negotiations and therefore could not comment on the matter.

MTN failed to respond to M&G queries before our print deadline.

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