More interconnect confusion

The Department of Communications (DOC) is leaving the approval of a proposed glide path for lower interconnect up to the regulator.

This follows the revelation of a letter from MTN to local alternative telecommunications company ECN, which proposes a glide path for the interconnect rate that may not reach the levels announced by the department to the Parliamentary Portfolio Committee on Communications.

The department says it has received no formal communication on the planned agreement and the rest of the matter is now up to the Independent Communications Authority of SA (ICASA). The communication minister's spokesman, Tiyani Rikhotso, says the details will be hammered out between the regulator and the mobile operators.

Earlier this week, ECN received a letter from MTN with a proposed glide path of 89c during peak times from March next year, dropping to 85c in October 2011 and again to 80c in October 2012.

The proposed glide path for lower interconnect fees to 2012 has been met with confusion by the industry, sparking speculation as to whether the incumbent operators have engaged in backyard dealing.

Two months ago, the operators bowed to strong political pressure, spearheaded by Independent Democrats leader Patricia de Lille, who called on them to reduce the rates. However, the newly proposed cut is a far cry from what was initially requested by the Parliamentary Portfolio Committee on Communications, which hoped to see the glide path drop the rate to 60c.

After weeks of private meetings, communications minister Siphiwe Nyanda announced to Cabinet that the operators had agreed to eventually cull the rate down to a 77c flat rate for off-peak and peak times.

The expected flat rate of 77c is not mentioned at all in MTN's proposed agreement to ECN. The proposal to ECN is dated 30 November 2009; however, other companies seem to have been given the information long before the proposal was sent.

Vox Telecom announced the same glide path in its year-end results, revealed in its presentation last week. This has led at least one industry player, who asked to remain anonymous, to believe the path was a product of a backyard deal between the operators.

ECN has responded to MTN's letter, seeking clarification on the glide path that was expected to produce a far lower rate by 2012.

Vodacom has commented very little on the matter, saying only: “Vodacom is in support of a glide path to lower mobile termination rates, to lessen the negative impact on business sustainability over a period of time."

SA's third mobile operator, Cell C, which at one stage called for asymmetrical interconnect fees, says it is not concerned by the proposed glide path.

Newly-appointed CEO Lars Reichelt says he cannot comment on the proposal directly, since he has not seen it, but the proposed rates seem reasonable. He says the fact that the operators agreed to lower the rate at all is a world first and should be met with excitement.

He says the rates are reasonable, because the operators have been using the income from interconnect to expand and invest in networks. “Building a network is an expensive business.”

Reichelt adds that Cell C is comfortable with the current proposed glide path.

ICASA also did not disclose whether the proposal would be accepted by the regulator. However, it has indicated before that it will need to see the proposal to make a decision on whether it will accept it. The proposal is expected to reach the regulator early next year, in time for the March deadline set by the DOC.

MTN did not respond to ITWeb's query on how the agreed path was determined, or whether the DOC had anything to do with the newly proposed rates.