While the latest interconnect rate cut may serve as a means to ultimately lower the cost of communication and spur competition among operators, the move has heightened fears of further retrenchments in the telecoms sector, which is already haemorrhaging jobs.
Labour unions, which are already dealing with large-scale retrenchments at MTN and Telkom, have expressed dread that thousands more jobs could be on the line, as telecoms operators find themselves in an increasingly tough operating environment.
The Independent Communications Authority of SA (ICASA) yesterday proposed that interconnect fees, or mobile termination rates (MTR), for the first year of the glide path, be slashed from 44c to 30c in terms of what the country's larger network operators will pay the smaller players. MTRs between Vodacom and MTN - the dominant operators in the market - currently remain unchanged at 20c per minute.
This effectively narrows the MTR asymmetry that benefits minnows Cell C and Telkom Mobile, and allows them to compete more effectively against the sector's duopoly. However, yesterday's proposed MTR reduction will potentially add more pressure to the smaller players' voice revenue streams.
Solidarity spokesperson Marius Croucamp expects the sector could shed as many as 3 000 jobs within the next year. "The situation is very alarming. Telkom, which has been in trouble for some time, is downsizing and is currently busy with the first wave of job cuts. MTN is also downsizing and we hear rumours that it may lose even more jobs than what it has so far announced," he says.
MTN recently said it would axe more than 800 managerial positions as it seeks to cut costs, while Telkom earlier announced it is looking to retrench about 2 500 managers as part of a group-wide restructuring process. However, Croucamp says the ultimate number of causalities at Telkom could be substantially less, as many of the affected employees could be rehired under the company's new structure. He estimates the final number of Telkom job loses will be between 300 and 400.
But, he warns, the outlook for the sector remains bleak and says the latest reduction of MTRs would only serve to worsen the situation. Neither Vodacom, nor Cell C have announced retrenchment plans as yet, but the latter's position could change in light of the lower MTRs. Croucamp says that, to date, Cell C has shed a small amount of jobs over an extended period, while Vodacom has been quiet on the job front. However, he says, industry speculation abounds that the two could announce retrenchment plans soon.
Vulnerable sector
Communication Workers Union deputy president Clyde Mervin notes the ICT industry, as a whole, is in a vulnerable position, as it struggles to survive within a weakening economy. He says the union is engaging with Telkom around its retrenchments, and adds it will also approach MTN, as it is not entirely satisfied with the mobile operator's rationale for reducing staff numbers.
"We suspect that Vodacom and Cell C are also preparing to retrench," he says, adding the union will conduct "proper research" into the industry dynamics with the hopes of stemming job losses. "This is a very complex issue within our industry. We need to find a way to minimise the impact [of market conditions] on employment."
The South African Communications Union recently expressed similar fears of continuing job cuts within the telecoms space, describing the current wave of retrenchments as "shocking".
Union president Michael Hare even questioned whether there is not more to the problem than pure economics, saying the union suspects the telcos could well be using cost-cutting and revenue pressures as excuses to downsize ahead of a number of consolidation deals in the pipeline within the sector.
Hare also expects Vodacom to embark on rightsizing ahead of the conclusion of its buyout of second network operator Neotel, and says this is likely to happen before the deal comes before the competition authorities.
Croucamp points out that a small number of Solidarity's members have agreed to take voluntary retrenchment packages. "However, we warn people that this is an emotionally-charged environment and that they should get serious financial advice before deciding on anything.
"The unfortunate part is that these guys can't just go over to another company - none of them are hiring. While some of our members ultimately find other work to do, most face a period of unemployment."
Tough reality
Ovum analyst Richard Hurst previously warned against looking at cost pressures in isolation as a reason for retrenchments, saying it's easy to point fingers at lower mobile termination rates. "I would say it's more about general competition in the space - market share and operational efficiencies."
He expects the sector will continue to bleed jobs, as the heady days of the telecoms gold rush - as seen in the early 2000s - are over and telecoms players need to focus on their core business. "This is a natural consequence of evolution in this sector. Companies are having to trim costs via various means, including outsourcing infrastructure and services, especially in the current environment where telcos are involved in a price war."
Independent analyst Spiwe Chireka agrees downsizing is the result of natural progression, and says the current era of digitalisation and automation also means fewer employees are needed by telcos. "The economy is also under pressure, so I do expect that we will see further job cuts. However, the market should eventually normalise."
Yesterday's MTR reduction, she says, will have some impact on profitability and notes operators usually take about a year to adjust to a shift in rates. "This is a turbulent time, but unfortunately it's the reality at the moment."
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