Cell C's suggestion that the interconnection rate be cut from 125c to 75c for incumbent operators and 65c for new entrants saved it from Parliament's wrath, observers say.
Yesterday, Cell C CEO Lars Reichelt admitted his company, the smallest of the three mobile network operators, would take a heavy knock should this proposal be implemented, but added that it would recover and come back stronger.
Earlier in the day, MTN had said Cell C was a net benefactor from the interconnection rate and this had helped it to build up its network.
Vodacom made a similar statement during its presentation on Tuesday, the first day of the Parliamentary Portfolio Committee on Communication's hearings into the interconnection rate.
Both Vodacom and MTN came in for heavy criticism by parliamentarians for essentially using the interconnection rate - which some termed a “technical anomaly” - to make easy money that helped them cross-subsidise other services and keep new challengers at bay.
The politicians repeatedly pointed out that MTN, Vodacom and Telkom had agreed, between the three of them, to increase the rate in 1999 from 25c per minute to 125c, two years before the launch of Cell C.
“Asymmetric pricing helps the challengers and new entrants. Economists define new entrants as those who have less than 20% or 15% of a market. Currently, we have 9%,” Reichelt said.
He went on to admit that the proposal was “painful, because we have yet to turn a profit”.
Reichelt said the 75c and 65c levels were based on his “market observations”.
ANC MP Eric Kholwane asked if Cell C's proposal was one flat rate for peak and off-peak times.
In reply to a question from committee chairman Ismail Vadi, Reichelt said the rate should be fixed for a period of three to four years to allow the market to settle and then be reviewed.
Later, he told ITWeb that Cell C had done its modelling and had the approval of its shareholders to make such suggestions. Cell C has yet to turn a profit since its founding in 2001.
“Our shareholders like this market. Yes, it has many inefficiencies, but inefficiencies mean opportunities. And this market has legs - long legs,” Reichelt said.
A regulatory official from one of the rival network operators called the proposal a clever move by Cell C.
“They have given the politicians something to work with, positioned themselves as sacrificing profits in the short-term for the good of the country, and have avoided being asked to share confidential information,” he said.
Related story:
Parliament slates MTN's interconnect reliance
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