MTN could face a multimillion-rand fine if the Competition Tribunal agrees with Cell C and the Competition Commission that it has been involved in anti-competitive conduct.
This follows the Competition Commission’s decision to refer Cell C’s complaint to the Competition Tribunal for adjudication after it found that MTN was engaging in “price discrimination”.
Cell C maintains that MTN refuses to hand over up to R200-million in interconnection rates that it owes Cell C and has been charging Cell C discriminatory interconnection rates.
An interconnection rate is the amount one operator charges another operator to terminate a call on its network. For example, Vodacom would bill MTN R1,25 to direct a call to a Vodacom number.
Interconnection rates are seen as the single-biggest obstacle to stimulating healthy competition in the South African cellphone industry.
While this dispute is continuing, the Independent Communications Authority of South Africa (Icasa) is ploughing ahead to try to bring down cellphone-call rates and stimuÂlate competition.
Icasa published draft interconnection regulations last week, which state the regulator’s intention to bring down commercial interconnection rates to cost-based prices.
The commercial interconnection rate in South Africa is R1,25, which is among the highest in Africa and is higher than most of Europe.
A 2007 report from the European Regulators’ Group shows that of the 32 European countries in the report, only four had higher interconnection rates than South Africa.
Analysts say there is international evidence to suggest that reguÂlating interconnection tariffs to cost-related prices will reduce call charges by between 40% and 80%.
In the United Kingdom the communications regulator, Ofcom, recently reduced interconnection rates by 45% to 5,9 pence per minute, the equivalent of 85c a minute.
Ofcom spokesperson Helen Simpson says that successful regulation of these interconnection tariffs has meant that there is no need for retail mobile regulation because there is strong competition in the market.
The standoff between Cell C and MTN that has been referred to the Competition Tribunal has resulted from a dispute regarding Cell C’s roll-out of community service teleÂphones (CSTs), which are aimed at providing telecommunications services to under-serviced areas.
These CSTs have a regulated interconnection rate of 6c, which is 2 000% cheaper than the commercial interconnection rate of R1,25.
Cell C’s licence compelled the operator to roll out 52 000 CSTs in areas that have less than 10% fixed-line penetration. However, on completion of this licence obligation, Cell C realised that the CSTs were a profitable business venture and hence continued with the roll-out, which stands at more than 100 000 CSTs.
MTN claims that Cell C is rolling out CSTs in areas that are not classified as under-serviced and is therefore charging Cell C at the commercial rate, while still charging Vodacom’s CSTs the 6c interconnection rate.
“The commission found that the conduct of MTN of charging Cell C the commercial interconnection rate in the same areas that it charges Vodacom CST rates amounts to price discrimination,” said the Competition Commission this week.
“The commission has found that MTN’s conduct is likely to have the effect of substantially lessening competition between the telecommunication network operators.”
The maximum penalty that the Competition Tribunal could impose on MTN if it is found guilty of price discrimination could be 10% of turnover for the past financial year.
Cell C says it is pleased with the Competition Commission’s decision and has been confident that the commission would rule in the interest of fair competition.
“Cell C’s submission was that MTN is abusing its dominant position in the market and it is utilising its muscle to harm Cell C’s bottom line by challenging its community service telephones roll-out,” says Cell C’s Seona Motshabi.
MTN says it has noted the Competition Commission’s decision and it will be participating in the process further.
“MTN’s legal advice is that there are areas of law that should be interrogated in the notice, which we will investigate further in preparation of our full response to the notice,” says MTN’s head of regulatory affairs, Graham de Vries.
Commenting on the draft interconnection regulations, De Vries said Icasa has to follow due process when regulating interconnection rates and that it is better for the market to determine these rates.
“It is essential to understand that ‘good’ price setting does not necessarily mean ‘rock-bottom’ prices,” says De Vries. “A ‘good’ or ‘fair’ price is that which maximises the welfare of all, not just lowering prices in isolation.”
De Vries says MTN will comment on the acceptability of the draft regulations when it submits its response to Icasa in September.
Vodacom spokesperson Dot Field says the operator will make oral representations to Icasa in September and feels it would be premature to answer specific questions.