Mobile giant MTN today lashed out at the Independent Communications Authority of SA (ICASA), describing the proposed glide path for the drop in mobile termination rates as a vertical drop, instead of a structured phased approach.
The mobile operator took to the stand this morning at the public hearings into ICASA's draft call termination regulations, being held in Midrand. To be slapped by a further rate cut, argued MTN, means that 70% of the rate cut in the proposed glide path would be concluded in the first four months of the suggested timeframe.
Furthermore, MTN CEO Carel Pienaar argued that the proposed glide period ignores the voluntary “moral suasion” cuts made by the industry early this year.
In March, MTN became the last of the big three cellular operators to say it had signed bilateral agreements with its main rivals, Vodacom and Cell C. The deal resulted in a voluntary reduction in the interconnection rate, from 125c to 89c per minute during peak hours.
Pienaar pointed to the affects of the voluntary rate cut in March, which resulted in a 30% reduction in the company's 2010 capex, resulting in MTN cutting jobs and seeing an impact on its channel.
ICASA hit back, arguing that a regulator is not compelled to offer a glide period; however, this structured approach is to offer the industry time to adjust and compete in the new environment.
The regulator pointed out that mobile operators are suggesting that the regulator in effect delays the proposed consumer benefit for four years.
However, MTN noted the reduction in its interconnect revenue stream would have unintended consequences on the consumer - in effect undermining the regulator's objective of consumer benefit.
After the first cut, MTN has, through responsible management and subsidies to handsets and SIM cards, not been forced to increase tariffs. However, the proposed rate cut would have such a devastating effect on revenue streams that the company stated it may have to look at tariff increases.
“The cut would be too deep, too quickly,” offered the mobile operator.
MTN also argued that the proposition for the removal of the differentiation between peak and off-peak rates would result in an overnight change of a 15-year pricing model.
The operator instead suggested the regulator offer a glide path for the change in model, arguing that a phased approach is necessary.
Yesterday, MTN's main competitor, Vodacom, offered a similar argument, stating that the proposed glide path is steep and unprecedented, to such a striking degree that, if not modified, the shock to existing business models will be devastating.
Vodacom proposed that the commencement of the glide path, set for July, be delayed to 1 March 2011.
In a final attempt to draw sympathy from the regulator, Pienaar stated: “We accept the 40c target, even though when you look at when the pricing was worked out in 2007, MTN has since doubled its investment in the network. In the previous 12 to 13 years what we spent on infrastructure we have invested in the expansion of the network.”
Regulatory woes
The mobile operator also voiced concerns regarding the draft regulations, specifically around market definition. MTN argued that the suggested market definition is too broad, noting that SMS and MMS call termination has not been analysed.
Also, the company argued that the definition does not distinguish between fixed and mobile call termination specifically, because of functionality and cost differences.
MTN's written submission to the regulator, which will likely be the basis of its open discussion next week, says: “The draft proposals suffer from serious legal and regulatory flaws.”
The Act has several prescriptions to determine market competitiveness, including market studies and regulations to draw up methodology that determines which companies have significant market power.
Once the regulator has found significant power, it can then apply “corrective measures” to make sure companies with significant market power don't drown out smaller competing businesses.
MTN's submission states that none of these aspects of the Electronic Communications Act (ECA) have yet been completed or complied with, and the company says this makes the suggested regulations “ultra vires to the ECA” or outside the prescribed laws.
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