The Independent Communications Authority of SA's (ICASA's) latest mobile termination rates (MTRs) have elicited mixed industry reactions, with operators split down the middle with sentiments of opposition and enthusiasm, and analysts painting different pictures as to consumer benefit.
As with the telecoms regulator's previous cuts to mobile termination rates (MTRs), the latest reduction and what has been labelled "aggressive" asymmetry, the industry waits in anticipation for mobile operators to pass on the perceived benefit. MTRs - or interconnect fees - are the fees operators pay each other to terminate calls on each other's networks.
However, considering Vodacom and MTN will, as of 1 March, pay more than double the amount they will have paid back to them from Cell C and Telkom Mobile, there is uncertainty over whether consumers' pockets stand to directly benefit this time around.
As of next month, interconnect fees will drop from the current 40c to 20c (which the smaller players will pay Vodacom and MTN to carry calls on their networks) - while Cell C and Telkom Mobile will be able to charge their larger counterparts 44c per call terminated on their networks.
Market mould
While ICASA cannot force operators to lower their tariffs, it expressly expects its latest interconnect regulations - which include a glide path to 2016 - to result in price reductions.
The authority says its goal is to promote effective competition, and it believes the barrier to a lack of effective competition is the high termination rate for off-net call prices. This, says ICASA, prevents effective retail price competition.
"ICASA therefore expects the reduction of the termination rates to be passed through to consumers, and this in turn will allow consumers to make informed choices about which network to subscribe to, depending on quality of service as well as effective pricing."
The new asymmetry rates (which will in 2016 result in smaller players paying four times less than dominant players pay them for interconnect) have been tagged a massive boon for Cell C and Telkom Mobile.
As at September, Vodacom and MTN enjoy a 43% and 36% market share respectively, while Cell C and Telkom Mobile hold 17% and 2.2% of the market, respectively.
Waiting game
World Wide Worx MD Arthur Goldstuck says ICASA's latest MTRs are good news on one hand: "The proposed glide path is exactly what we needed. It's making interconnect almost immaterial to the cost of calls - a cause we have argued for from as far back as 2005, when World Wide Worx and others campaigned for the price of MTRs to drop because it was just too high."
Goldstuck says ICASA's latest move is evidence that the authority does listen to the industry, and also shows the Department of Communications is serious about bringing down the cost of communications in SA.
Having said that, notes Goldstuck: "We face a three-year period where consumers won't benefit as much as would be hoped. Between now and 2016, asymmetrical MTRs remain at 40c or above and this counteracts the positive effect. The only benefit of the aggressive asymmetry is for the smaller networks, but consumers don't necessarily benefit.
"The point to be made here is that asymmetry means the average consumer won't benefit this time around. It may sound counter-intuitive, but consider that someone on MTN or Vodacom calling the smaller networks will make a call where the MTR remains where it was before. And that is going to be the case over the next three years, so the cost for 80% of the market won't come down."
Cell C - known as the consumer champion and instigator of the mobile price cut of 2012 - generally holds the industry's expectations when it comes to reacting to the lower MTRs with further per-minute cuts. This time around, however, analysts are not convinced this will be the case.
Goldstuck says he has heard talk that Cell C might not pass the lower interconnect fees on to consumers this time - but that it may rather invest in network expansion. In itself not a bad thing, he notes.
Ovum analyst Richard Hurst does expect some form of reaction from the operators - even if it does not amount to giant waves of change. He says it represents an opportunity for Cell C to start a serious marketing campaign to win subscribers. "It could [also] seriously assist in CEO Alan Knott-Craig's ambition of gaining 25% market share of revenues. Whether this is achieved or not, the new MTRs will help."
He says the new MTRs will provide "much-needed ammunition" to sustain the price war and thinks the likes of Cell C will pass the benefits on to the consumer sooner rather than later.
StrategyWorx CEO Steven Ambrose echoes Vodacom's sentiments that the new MTRs will not be all good news for consumers.
He says, while dropping interconnect rates to around 10c makes sense over the period envisaged, and will bring costs down over time - the issue for many will be the asymmetry that was approved.
"At first glance it appears that Cell C and Telkom Mobile will score big. The key perspective is that the market is essentially saturated, with very little growth possible, especially in the voice market. MTRs only impact voice."
Ambrose notes MTRs are one component in the mix of retail pricing of mobile communication. "All the big operators will adjust their business models to take the new MTR rates into account and I believe this will focus the management of MTN and Vodacom on more innovative product offerings that allow greater margin. The short-term impacts will be fully absorbed in a year's time and the big three operators by 2016 will be MTN, Vodacom and Cell C," he forecasts.
Africa Analysis analyst Dobek Pater says the new MTRs are not really something consumers can be too excited about right now. He says it boils down to the discretion of the operators as to whether the pinch for consumers will be relieved at all.
"It is likely Cell C and Telkom Mobile will pass some benefit on, but Vodacom and MTN will probably only react if they really feel the pressure. If that doesn't happen, any price decrease [from the new MTR structure] will be marginal."
In considering the chances of Cell C dropping voice prices, Pater notes the price war the company instigated has taken its toll and there have been questions as to whether the price cuts the operator introduced make for sustainable operations.
"Depending on who you speak to, Cell C could be offering voice services at a tariff point that is not necessarily sustainable as it is. The company needs revenue that will turn profit so they can put money into their network."
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