Parliament slates MTN's interconnect reliance

Independent Democrats leader Patricia de Lille did not accept MTN's assertion.

On the second day of public hearings held by the Parliamentary Portfolio Committee on Communications on interconnection costs, MTN found itself slightly better treated than its rival Vodacom yesterday, both in terms of the tone of the questions and MPs pressing for answers.

At the beginning of the meeting this morning, MTN attempted to ward off any threat of being forced to divulge its costing for interconnection rates by saying it is willing to supply the information in a confidential Parliamentary hearing.

Vodacom took a beating yesterday when it faced the communications committee, which threatened to subpoena rate breakdowns from the company.

More than interconnect

ANC MP Johnny de Lange questioned MTN on varying agreements signed within the industry. He said the fundamental issue was not that the operators talked to each other, but that they could have agreed to a price with relation to interconnection and the agreements.

The question followed MTN SA MD Karel Pienaar's revelation that operators have more than just interconnect agreements in play, but also others including some on facilities leasing.

De Lange pointed out that seeing these agreements were for life, or unless there were definite changes in regulation, increased competition was not necessarily the answer to bring down costs.

He was referring to discussions held earlier in the session with the Competition Commission which advocated that increased competition in the market was a key means to reduce costs. It was also noted during this session that the high interconnection rates often prejudiced new market entrants.

“We must not position competition as the god to bring down costs. For instance, in the first two years of this market, the network operators had covered all their initial investment. However, we still need the information on costing and that we will get at a later date,” he said.

Too much reliance

Lindiwe Mazibuko, Democratic Alliance MP, asked MTN why it had become so dependent on the revenue stream generated by interconnection fees.

“Why has interconnection turned into such a significant revenue stream? Why did a technical mechanism, not a service, become in a perverse way a major revenue generator for MTN?” she asked.

MTN SA MD Karel Pienaar replied that the operator had never set out to turn interconnection into a revenue stream, and that the price was set to limit arbitrage opportunities created by price differentials that impacted the quality of service.

“Service and price were our original objectives, and about 30% of our customer base only receives calls and therefore those customers become non-profitable. Furthermore, we have to maintain quality of service and arbitrage opportunities degrade that quality of service as in some cases calls come into the country then go out of the country and then come back in as prices are arbitraged and the quality of service falls.”

De Lange commented that arbitrage sounds like increased competition.

More customers?

Independent Democrats leader Patricia de Lille commented that she did not accept MTN's assertion that if it had to lower interconnect revenue, it would mean retail handset prices would have to be raised.

“Is it not feasible that as the interconnection costs come down that the number of calls will increase so you will regain that lost revenue?” she asked.

Third mobile operator Cell C will be the next network provider to face the committee's questions this afternoon.

Related stories:

• Telkom fends off Parliamentary anger
• Interconnect rate to be cut by November
• Parliament takes on Vodacom

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