Johannesburg, 30 Jun 2010
Small telecoms operator ECN has come out swinging at incumbent mobile operators, describing their arguments against the Independent Communications Authority of SA (ICASA) regarding draft call termination regulations as nothing short of myth positioned as fact.
Speaking at the public hearings for ICASA's draft regulations held in Midrand yesterday, ECN CEO John Holdsworth noted his company supported the authority's ongoing fight to lower call termination rates despite resistance from the mobile incumbents.
In a David versus Goliath scenario, the telecoms operator attacked the core of the mobile incumbent's arguments that ICASA's proposed glide path for the lowering of mobile interconnect rates is extremely aggressive and would result in business model shock.
If the regulations are passed, the rate would be cut to 65c in July, with a glide path leading to 40c by July 2012. Together with the voluntary cuts made by Vodacom, MTN, and Cell C earlier this year, the proposed cut would mean 70% of the rate cut in the proposed glide path would be concluded in the first four months of the suggested timeframe.
ECN said this argument was just a way in which the mobile incumbents could defend their super profits. What other industry enjoys a return of equity above 60%, asked the operator.
However, the rate cuts have taken their toll on the mobile operators, with both MTN and Vodacom reporting heavy losses. Earlier in the hearings, MTN pointed out the effects of the voluntary rate cut, which saw a 30% reduction in the company's 2010 capex, resulting in MTN cutting jobs and a negative impact on its channel.
Vodacom reported R200 million in lost interconnect revenue from its voluntary rate cuts. Both operators argued the loss in revenue would lower investment in the market and hinder the objective to deliver universal services.
ECN hit back, arguing the increased competition would force prices lower, and lower per minute prices would make services more accessible to all.
Furthermore, less investment from the incumbents would be offset by increased investment from new entrants. Also, the thousands of lost jobs in the telecoms space cannot be compared to the tens of thousands of jobs in the rest of the economy, the operator explained.
Overriding these arguments, noted ECN, is the fact that despite the drop in interconnect rates earlier this year, two mobile network operators still charge ECN R1.25 in termination costs.
“We engage in hand-to-hand combat with these incumbents on a daily basis. Without appropriate regulation in place it becomes completely impossible to, never mind prosper, but to survive,” stated Holdsworth.
On this point, ECN argued its main objection to the draft call termination regulations centres on the proposition of symmetrical glide path rates, which the operator believes will again benefit the incumbent operators at the expense of new entrants.
Not fair or reasonable
“There seems to be an expectation that new entrants should charge the established SMP licensees the symmetrical glide path rates for either fixed or mobile services,” noted the telecoms operator.
ECN believes this is neither fair nor reasonable, as new entrants usually face significantly higher costs than established operators. This would mean that ICASA proposes ECN should offer Vodacom, MTN, and Cell C interconnect rates of 15c, while the mobile network operators charge ECN 65c.
The net effect of this proposal is that new entrants will further subsidise the established SMP operators' networks and profits, explained ECN.
Instead, the company calls for fair discrimination in the medium term to encourage competition. “Bear in mind that established SMP operators have had more than a decade to benefit from high interconnect rates.”
ECN proposed that new entrants should be entitled to interconnect reciprocally with the established SMP operators until such a time as the mobile termination rate and fixed line rate converge.
“Reciprocal termination rates will benefit new entrants and competition without prejudicing consumers or increasing prices,” concluded ECN.
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