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The general moves in

Many questioned the appointment of former South African National Defence Force General Siphiwe Nyanda when he was announced as South Africa’s new communications minister earlier this year.

How could a military man have the credentials to run such an important ministry, with no experience in the sectors he would govern? asked critics at the time.

But President Jacob Zuma was obviously looking for a strong man who would have the muscle to take on mobile giants such as Vodacom and MTN — companies that stood accused of profiteering at the expense of South African consumers.

Nyanda did not disappoint.

Despite an initial furore over his two new BMWs, valued at more than R1-million each, Nyanda soon had South Africa’s mobile giants in his sights.

An intense onslaught from him, the department of communications and Parliament ensued, in which interconnection rates became a rallying point for consumers who were fed up with exorbitant mobile rates in South Africa.

Following years of frustration with the apathetic approach of the previous communications minister, the late Ivy Matsepe-Casaburri, one award-winning telecoms journalist tweeted that ‘Nyanda can keep the cars if he gets the interconnect rate right”.

Now we have seen the first fruits of Nyanda’s onslaught — a 36c interconnection rate cut, announced last week in Parliament.

Alongside this, South Africa’s mobile companies have promised Nyanda they will introduce cheaper packages before December, a full three months before the interconnection rate cuts come into effect.

The question on everyone’s lips, though, is whether the rate cut is the opening salvo from Nyanda in an ongoing war or whether, as George W Bush once did, he has declared victory prematurely.

The new rate cut will come into effect by March next year and will bring the peak interconnection rate down from R1.25 to 89c.

The off-peak rate will remain the same, at 77c. This amounts to a blended rate of 83c, still higher than the 78c proposed by Vodacom and MTN last month and the 75c proposed by Cell C during hearings held by the parliamentary portfolio committee on communications.

There are bound to be many who are disappointed with the agreed cut. Some stakeholders have been calling for interconnection rates to be cut to a cost-based rate closer to 25c.

Paris Mashilehe, the chairperson of the Independent Communications Authority of South Africa (Icasa), has said that the cost-based rate is closer to 40c.

Even Alan Knott-Craig, the former Vodacom chief executive, entered the fray, saying that an interconnection rate of 60c would be appropriate.

All of this makes it clear that Nyanda, the department and Icasa have a long way to go before they can declare ‘mission accomplished”, as Bush did aboard that aircraft carrier.

One industry insider who did not want to be named said the compromise by Nyanda on the rate cut bore the ‘hallmark of a new minister and team at the department of communications who painted themselves into a corner through a lack of appreciation of the complexities of the industry and the time frames involved for effecting change”.

But the insider was quick to point out that he preferred the ‘panzer politics” of Nyanda to the ‘apathy” of Matsepe-Casaburri.

The insider insisted that he was told that Nyanda had phoned the MTN and Vodacom managing directors hourly for an extended period on the night before the announcement was made.

Alison Gillwald, the executive director of Research ICT Africa, said that intervention in the public interest was long overdue. ‘All our evidence suggests that interconnection prices are very high by international and even African standards,” said Gillwald.

‘However, the development of the sector is too critical to the country for the sector to be regulated through political pressure and moral suasion alone.

‘It is imperative that the factors that have contributed to this regulatory impasse — legal bottlenecks, regulatory capacity [and] institutional arrangements — be addressed.”

Icasa told the Mail & Guardian this week that it welcomed the reduction, but that it would not in any way affect its work in determining cost-based interconnection rates as necessary and in line with the Electronic Communications Act.

This was backed up by communications ministerial spokesperson Tiyani Rikhotso, who said Icasa was still expected to complete its process to determine interconnection costs. ‘This was a voluntary offer from operators,” said Rikhotso. ‘We did not prescribe or force change.”

Shuttleworth Foundation telecoms fellow Steve Song said that the 36c cut was part of what Tracy Cohen, a former Icasa councillor and now Neotel regulatory head, called the ‘4D strategy”: ‘Delay/ deny/debate/deliver.”

‘The operators have finally gotten to the fourth D — of deliver — regarding interconnection fees but by underdelivering, they can start a whole new delaying/denying/debating process for the next cut,”

Song said. ‘I don’t think anyone is in much doubt that the cut does not yet bring interconnection fees down to what interconnection is actually costing the operators.”

Interconnection rates are what one operator pays another operator to terminate a call on their network and are seen as a major bottleneck to competition in the sector.

The interconnection controversy began in 2001 when Vodacom and MTN raised the rate by more than 600% — from 20c to R1.25 — shortly before Cell C entered the market.

Richard Hurst, an Industrial Development Corporation telecoms analyst, said that the mobile operators had an interest in setting the number as high as possible at the outset to take into account the glide path over the next three or so years.

‘If the operators can work out where they are at the outset, they may be able to determine where they will end up,” said Hurst.

‘I think that what we have here is a bit of marketing and perhaps the one operator has missed the opportunity and allowed the others to look as if it was the champion of the market, pre-empting further regulatory pressure.”

Hurst is talking about Cell C’s capitulation by joining the agreement with MTN and Vodacom after it had shown some resistance in pushing for a lower interconnection rate than the one proposed by the two mobile giants.

Cell C’s chief executive, Lars Reichelt , said the company believed the rate cut was a ‘major step forward” and it was happy to have been ‘driving this process in no small measure”. He said the rate cut would complement the work being done by Icasa to regulate interconnection rates.

Hurst suggested we would see increased regulatory or governmental pressure on mobile operators with regard to the off-peak rate, which has not been cut.

Vodacom managing director Shameel Joosub said the reduction in interconnection rates was a process, with the highest rates being addressed first.

‘The reduction in mobile termination rates will reduce costs for some operators, but not for
Vodacom, as we are a net receiver of interconnection fees,” said Joosub.

‘The introduction of new Vodacom offerings in December is a function of generating savings in other areas of our business and being able to pass these savings on to consumers.”

MTN had not responded to the M&G‘s questions at the time of going to press.

Price war begins
Virgin Mobile and Cell C both announced call rate cuts following the announcement of the 36c interconnection rate cut.

Virgin Mobile was the first to move, announcing a 32% cut on prepaid rates after the first five minutes.

This amounts to a call rate of 99c after five minutes of a call, with a standard rate of R1.99 applying for the first five minutes.

Cell C was next to announce call rate cuts, with a 47% reduction.

Cell C launched a new package named ‘Easy chat all day”, which stands at a R1.50 set rate, no matter when you make the call or which network you are calling.

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