The Right2Know campaign (R2K) has criticised the Independent Communications Authority of SA's (ICASA's) revised costing model for determining termination rates.
It says the model will "inflate the actual cost of communication and perpetuate profiteering through termination rates".
This comes after ICASA announced on Monday that it had opted to adopt long-run incremental cost plus (LRIC+) as the cost standard for the bottom-up and top-down modelling to determine the cost of mobile and fixed wholesale voice call termination.
Unlike pure LRIC - which the authority says it ultimately aims to employ - LRIC+ includes joint and common costs. The revised model is part of ICASA's six-month court-ordered review of termination rate regulations.
In a statement released yesterday, R2K raised concerns that the regulator's modified model allows MTN, Vodacom, Cell C and Telkom to include costs that are not directly related to the interconnect fees. The organisation says this will "inflate the actual cost of communication and perpetuate profiteering through termination rates".
Phoney war
R2K notes that, since the court's decision to allow ICASA to institute its new, lower termination rates while it reviews and republishes fresh regulations, the mobile marketing and price war between SA's mobile operators has heated up.
"MTN, Vodacom, Telkom and Cell C have been engaged in an advertising war promising lower call rates. These new rates have largely been used as a marketing tactic to attract new customers and are not necessarily permanent.
"R2K rejects the profiteering of all phone companies at the cost of our people. We reiterate our call for free basic telecommunications services. The new interconnect fees must put an end to the phoney price wars and cut the cost to users meaningfully."
Cost contestation
Alison Gillwald, executive director at Research ICT Africa, says the contestation over different costing methodologies relates to the regulator's obligation to consider the effects on efficiency and competition of any regulatory control of price - and to give end-users of public electronic communication services the greatest possible benefits.
"Although pure LRIC is regarded by regulators such as Ofcom [UK] as the best approximation of marginal costs, LRIC+ is likely to be less contested by the dominant operators and may most swiftly remove the current jam in the regulation of termination rates."
Gillwald notes Ofcom has argued LRIC results in mobile termination rates (MTR) at less than half of those calculated using LRIC+. "Their decision on this several years ago was appealed, but the competition commission to which the appeal was made, ruled in their favour in 2012, confirming LRIC as providing the best assessment of cost. [The commission] in fact urged [Ofcom] to move more swiftly on their proposed four-year glide path."
She says increasing evidence challenges the notion that pure LRIC and the dramatic termination rate reduction it allows causes a "waterbed effect" which means prices elsewhere rise.
"Research on the impact of mobile termination rate reductions on retail prices in Kenya, Namibia and SA undertaken by Research ICT Africa in 2013, challenges the notion of a waterbed effect. In fact, it finds no evidence of an increase in retail prices in any of the African markets it reviewed, following termination rate reductions."
While there are revenue losses from MTR reductions, says Gillwald, these need to be offset with the reductions in interconnect charges. "The figure that should be reported is the net interconnect figure."
ICASA had not responded to requests for comment by the time of publication. The regulator has outlined its reasons for going with the LRIC+ model in a statement on its Web site.
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