Things are heating up in SA's mobile telecoms landscape, with the country's long-time duopoly set to take the Independent Communications Authority of SA (ICASA) to task over new inter-network fees - and the authority taking a dogged stance, seemingly unwilling to back down.
This comes after the communications watchdog introduced new, much lower mobile termination rates (MTRs) and asymmetry that heavily favours SA's smaller mobile networks, Cell C and Telkom Mobile, two weeks ago. Welcomed by the third and fourth operator, the new MTR structure - which will see MTRs halved next month - has been challenged by both Vodacom and MTN.
MTRs - or interconnect fees - are the fees operators charge each other to carry/terminate calls on their networks. The current MTR is set at 40c.
Yesterday, at a parliamentary session on the cost to communicate with Parliament's Communications Portfolio Committee, MPs and ICASA, it emerged that friction between SA's two largest mobile operators and ICASA has since intensified, with MTN now having taken the legal route to thwart new MTR regulation and Vodacom expected to follow suit.
Nomvuyiso Batyi, ICASA's councillor responsible for markets and competition, told MPs the authority had received a legal letter from MTN, to which it had to respond by 12pm. Reports cite her as later saying the authority expects Vodacom to join the action by MTN, and is prepared to face the operators in court.
Legal action
MTN has confirmed this, saying it has "exhausted all other avenues with the regulator" and is left with no choice but to pursue its legal options to have ICASA's latest MTR regulation removed.
This morning, ICASA confirmed it responded to MTN's letter through its attorneys yesterday.
Spokesperson Paseka Maleka says MTN intends to launch an urgent court application on Friday.
"ICASA will await court papers and study them carefully. It is, however, our intention to oppose any application on this matter should a relief be sought in court. And, of course, it is the authority's mandate to regulate the telecommunications industry; and it is our intention to fulfil the mandate as enshrined in the law to ensure that the South African public have access to a wide range of high-quality communication services at affordable prices."
Vodacom says it has not taken any action to date. The operator says it is not opposed to a reduction in MTRs per se - but it feels they need to be cost-based. "This issue isn't about profits - it's about procedure. There is a defined process for determining cost-based mobile termination rates and we think it's reasonable to ask that the regulator follows this process."
Market divide
The Parliamentary Portfolio Committee on Communications hearing saw ICASA take to the podium to outline its plan to quash what it says is an "ineffectively competitive" telecoms market.
The new MTRs, introduced at the end of January, were ICASA's way of narrowing the market share divide that has been characterised by Vodacom and MTN on top, with later entrants Cell C and Telkom Mobile holding on to the bottom rungs since their entry in 2001 and 2010, respectively.
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.
2010 reduction
In a presentation outlining how ICASA reached its decision to introduce what it concedes are "drastic" measures, how termination rates affect retail prices and its way forward to 2015, Batyi singled Vodacom and MTN out as being impediments to competition.
Following a market review and the regulator's first MTR cut in 2010, Batyi said certain expectations were held by the authority - most of which were not realised. She said it was time for change and that lower termination rates and asymmetry were necessary.
"In line with our Government Gazette in 2010 we expected a visible outcome from the reduction in wholesale voice call rates, including a reduction in the barriers to entry for competitors, smaller licensees moving away from a pure niche retail market to a greater overall participation in the provision of services, a reduction in the price charged to the end user for voice calls, an increase in dynamic pricing packages and a reduction in the cost of doing business for operators. You will see most of this did not happen."
Batyi said, while Telkom and Neotel reacted to the 2010 move by passing savings on to consumers, the same could not be said for mobile operators. "Different operators behaved differently after the 2010 reduction. Fixed operators reduced calls to mobile operators. Neotel dropped its prices by 21% and Telkom by 36%. Mobile operators did not reduce calls to fixed operators.
"In essence, a call to a fixed line represented profiteering and the failure to change this after 2010 when termination rates were reduced was particularly stark in our view."
Way forward
Fast forward a couple of years, said Batyi, and the picture remained the same. "Looking at 2012 market share [we could see] the two main players still dominated the market, and termination rates still represented a high cost of doing business."
Now, another two years on, she said, the current termination rates still do not adequately reflect costs. "The market remains ineffectively competitive and we need to change the termination rates and introduce asymmetry for a shorter period of time."
In ICASA's October draft MTR regulations, it had proposed a seven-year period for asymmetry, which its latest regulations compress to a period of four. She said it is the shorter period - coupled with a more drastic reduction - that has the bigger operators concerned. "It must be noted, however, that in 2017 only those licensees that have a market share of less than 10% of the retail revenue in the local market will qualify [for asymmetry]."
Regarding ICASA's focus for 2014 and 2015, Batyi said the regulator would clamp down on certain promotions that lack transparency and confuse consumers. "Subscribers have no way of knowing beforehand how much they will be paying for a call. Some operators use dynamic tariffing, which prices calls depending on the location and time and then they give a percentage reduction, [rather than] the actual rand fee payable."
She said ICASA would review the way tariffs and promotions are submitted to the authority, look at on-net versus off-net pricing, tariff transparency and the length of time promotions run.
"Our goal is to ensure consumers know what the cost of a call will be before they make it, to allow them to make informed choices. Removing the difference between on-net and off-net calls will improve competition and transparency will put downward pressure on prices."
ICASA is seemingly responding to industry pressure on the body to take a firmer stance in the local telecoms sector, which has been criticised for being a top-heavy duopoly with some of the most expensive mobile tariffs in the world.
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