Contradictions and confusion plague the communications regulator's pronouncements that retail prices for both mobile and fixed calls will drop as call termination regulations gain traction.
The Independent Communications Authority of SA (ICASA) has outlined its goals for 2011, promising to monitor the impact of call termination regulations on the retail voice market, specifically regarding the affordability of services for consumers.
But this revelation contradicts earlier predictions from analysts, the Department of Communications and ICASA itself that the impact of mobile termination rate (MTR) cuts would only be realised years later and, in fact, had little or no direct impact on mobile operators' retail costs.
“We have always maintained that the hype surrounding the whole interconnect debate was misguided,” says WWW Strategy MD Steven Ambrose.
“There never was any correlation between the interconnect and the cost of cellular calls, and the Department of Communications was simply being populist in its advocacy of having these cuts in the name of lower telecommunication costs.”
Mixed signals
Second mobile operator MTN has also stated there is no link between interconnect rates and retail pricing. “MTN has, at numerous occasions, highlighted that there is no direct link between mobile termination rates and retail prices; some prices go up, some stay the same, and others decline as part of normal competitive activity, not regulatory intervention,” explains Robert Madzonga, chief corporate service officer of MTN SA.
ICASA has confirmed MTN's statement and has previously been quoted as saying: “A reduction in termination rates does not necessarily feed through directly to retail rates. The objective of reducing termination rates is to reduce the barrier to entry in the provision of off-net calls, thereby fostering competition and a dynamic reduction in retail prices over time.”
However, as a result of previous statements by ICASA and government, consumers have been under the impression that the main objective of reducing the cost of MTRs would be to reduce the exorbitant cost of communication in SA and ultimately offer savings to the consumer.
Consumer savings
However, ICASA is now saying it has two expectations in regard to rate cuts.
“Firstly, we expect the fixed-to-mobile retail call rates to reduce as the mobile termination rates are reduced. Secondly, we expect some measure of pass-through to a reduction in retail prices of calls between mobile networks.
“However, given the nature of product bundling in the provision of retail mobile services, we expect that price reductions will be subject to dynamic competition,” explains the authority.
Fezekile Mashinini, business manager at BMI-TechKnowledge, explains that retail tariffs are based on a combination of any factors, such as operating costs, network build requirements, customer acquisition costs, and also the level of competition in the market.
“In practice, however, retail prices will come down, as long as competition grows, and a more level playing field for all other players seeking to terminate calls on a large operator's network means less oligopolistic competition.”
ICASA agrees and is of the view that a lack of effective pass-through to retail prices will indicate there may be a lack of effective competition in the retail market for mobile services.
Months or years?
The authority says it will monitor price movements in the retail market for mobile services vigilantly over the coming months to evaluate whether further action is required.
However, it would not peg down the parameters it would use to measure the sufficient reduction of retail prices.
Furthermore, the final rate cut is only due in 2013. Thereafter, it is expected that the regulations will have levelled the playing field enough to foster a more competitive industry.
It is unclear what benchmark figure the authority has in mind, or how this will follow through over the coming years and post the final MTR cut.
“For further monitoring purposes, ICASA has been and will continue to receive tariff and related compliance reports from the operators,” concludes the authority.