Some South Africans are paying just six cents a call in interconnect fees to cellphone operators, while others are paying a whopping R1,25 a call.
The six-cents-a-call applies in under-serviced areas, but major network operator Cell C says it can operate and make profits at six cents a call.
Cell C wants to extend its operations in under-serviced areas beyond its licence obligations, as these areas are profitable for it.
Interconnect fees are the portion of a cellphone call charge which the major networks charge one another for callers to make contact with their network. For example, a call from a Cell C subscriber to an MTN subscriber will net MTN R1,25 in interconnection revenue.
South African interconnect fees are among the highest on the African continent, coming in third in a sample of 21 countries — only Kenya and Benin charge more. While South Africans pay R1,20 a call, the Senegalese pay just 21 cents.
Network majors Vodacom and MTN are estimated to have brought in revenues of R12-billion last year from interconnect fees, having raised these by 515% shortly before Cell C entered the market.
The R12-billion they earn from this source dwarfs the annual budgets of 19 government departments, including the presidency, foreign affairs, home affairs, trade and industry, minerals and energy, public enterprises and public works.
The interconnect regime has broken down in the last two years, with MTN withholding R1-billion in fees owed to Cell C following a dispute over the rollout of community service telephones to underserviced areas.
But relief might finally be on the way. A discussion document on interconnection published recently by the Independent Communications Authority of South Africa (Icasa) has in its sights the skewed interconnect regime and mobile operators’ interconnect super-profits.
The discussion document highlights the regulator’s strategy to bring down interconnection costs by controlling the interconnect price set by MTN, Vodacom and Telkom, in relation to cost.
Interconnect charges are seen as the single biggest obstacle to stimulating healthy competition in the mobile phone sector in South Africa.
According to one analyst, evidence suggests that regulating interconnection to a cost-related charge has reduced call charges in a number of other countries by between 40% and 80%.
The discussion document highlights the fact that in the two years leading up to Cell C’s entry into the market, MTN and Vodacom hiked the interconnection fee up by 515%.
Between May 1999 and October 2001, the interconnect fee rose from 20c to R1,23.
The discussion document argues that MTN and Vodacom’s motivation for raising the interconnect fee could be economically explained as an attempt to thwart Cell C’s entry into the market because it would push up its call rates.
Cell C’s CEO, Jeffrey Hedberg, who has worked in the telecoms sector throughout Europe, says a cost-based interconnect is standard practice.
“In this country, it is just a price, with no definition of how that price is built up,” says Hedberg. “I don’t know how the six cent charge was defined. Was it a poker game? I don’t know.”
“There needs to be someone to look at it from a customer perspective,” says Hedberg. “The reason the tariffs can’t come down is because the interconnect [charge] is so high.”
MTN and Icasa had not responded to queries at the time of going to press.
Entrepreneurs
Cell C has turned what once was a licence obligation into a profitable revenue stream, offering opportunities to 9Â 000 entrepreneurs in the process.
Cell C CEO Jeffrey Hedberg says the top 8Â 000 entrepreneurs who are operating Cell C’s 52Â 000 Community Service Telephone (CST) stores or containers raked in R33-million last year.
“We have now over 9Â 000 CST operators and the average salary they are bringing home monthly is R26 000 to R27 000,” says Hedberg.
Hedberg says the CSTs have been a huge success and a profitable business for Cell C as well, which is why Cell C wants to roll out more CSTs to underserviced areas and at the same time leverage them as points of sale for starter packs.
Patience Martin is one of Cell C’s entrepreneur success stories. In three years, she has taken herself from a job selling stockings, shoes and clothing on credit to Pick ‘n Pay employees to an empire of five CSTs with a total of 100 telephone lines.
Three years ago, Martin opened her first CST, a mobile trailer with five telephone lines that operated out of the taxi rank in Lenasia. Two months later, she already needed another 10 lines, and things have grown from there.
Martin says she now operates about 45 lines in Lenasia and has expanded to other areas like Orlando East, Gunswart, Roodepoort and Naledi. “My customers are happy because Cell C is well known and the calls are only 90c per minute,” says Martin.