Consumers have been misled to believe that mobile termination rate (MTR) cuts would have a direct impact on retail costs. Instead, consumer savings will come only after the market becomes truly competitive, say analysts.
It has been widely publicised 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.
The rates were voluntarily reduced by SA's mobile operators from R1.25 to 89c per minute earlier this year, at which point then chairman of Independent Communications Authority of SA (ICASA) Paris Mashile was quoted as saying: “I will be very disappointed if the cellular operators do not pass on the interconnection rate cut to consumers.”
Draft regulations by ICASA propose another rate cut this year, to 65c per minute, with a glide path leading to 40c per minute by July 2012. These have yet to be finalised.
All the while, the Department of Communications has been advocating that the rate cuts would bring down the high cost of communication in SA.
“When we first began to discuss MTRs we indicated that the main objective was to make a difference in the pocket of the consumer,” says Tiyani Rikhotso, spokesperson for minister of communications Siphiwe Nyanda.
“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.”
Rikhotso maintains that the department has not misled the public, arguing the regulations are “the first step” to achieving the goal of lower call costs for the consumer. He says the department will continue to move forward in its efforts to reduce call costs and is confident that the mobile operators will continue to act in good faith.
Mixed signals
The only real impact of MTR cuts would be on off-net costs, which will in turn create competition, eventually resulting in consumer savings, but this is still years away, say analysts.
Mobile operator MTN argues 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.
“MTN investigated the impact that a decline in interconnection revenues had on its operations and have made the appropriate plans to restructure its business model to reflect this. MTN will, of course, continue to offer innovative value for money products and services, while - at the same time - ensuring its network quality and grade of service is not detrimentally affected.”
ICASA agrees: “This rate affects the cost of an off-net call from one network to another. The termination rate, if set too high, represents a barrier to entry and reduces the ability for one network to compete on retail off-net prices with another network,” explains ICASA spokesperson Paseka Maleka.
“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,” continues Maleka.
“The authority will review the retail pricing strategies of all licensees on conclusion of the call termination regulations.”
Competition only
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.
Ambrose agrees: “Over a period of time, the increase in competition should allow retail tariffs to come down and a rebalancing of costs will take place. Some of this has already started to happen with the VOIP operators, and with Telkom and their lower fixed to mobile changes.
“ICASA, per its mandate, will look at retail tariffs over time, in order to ensure that the market is free and operates competitively, and that there are no significant barriers to entry or market distortions. In our opinion, this is the correct and market friendly way to regulate the industry.”
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