A legal challenge launched by MTN against the Independent Communications Authority of SA (ICASA) last week is delaying the inevitable and does not spell the end of the authority's plan to bolster smaller operators.
This is according to industry observers and comes after ICASA on Friday decided to postpone the implementation of new inter-network call fees introduced in a bid to up competition and lower costs. Observers say the latest development does not indicate ICASA's plans have been scuppered, or that SA's duopoly is let off the hook for long having enjoyed massive benefits.
They also say MTN's legal challenge to ICASA's proposed new mobile termination rates (MTRs) - originally planned to take effect next month - and a consequent two-month postponement will also not have any immediate bearing on consumers.
This comes after a week of deliberation, speculation and general industry buzz around MTR (interconnect fee) reductions ICASA announced at the end of January. The cuts were intended to give SA's smaller players a leg up in the market, historically dominated by Vodacom and MTN.
Lopsided landscape
Termination rates are the fees operators pay each other to terminate calls on their networks. With the local market 80% held by the mobile duopoly, Cell C and Telkom Mobile have been paying disproportionate fees to their 20-year-old counterparts since their entry to market in 2000 and 2010, respectively.
So when SA's telecoms regulator put its foot down and introduced new MTRs in favour of the two relatively new players, it came as no shock to the industry's system. The degree of asymmetry in the new fees, however, rattled Vodacom and MTN - while the two underdogs welcomed them.
If it were to go ahead as planned, on 1 March, ICASA's new termination rate regime would mean the current MTR rate (40c) would be slashed in half for Cell C and Telkom Mobile - while Vodacom and MTN would pay 4c more (44c) to the two.
According to ICASA's proposed three-year sliding scale, by 2016 that rate will hit an all-time low of 10c payable by Cell C and Telkom Mobile, and 40c for the two leading network operators.
Although Vodacom was expected to join MTN in launching legal recourse, the leading operator has to date merely been mulling its options. Last week, the company said: "There is a defined process for determining cost-based mobile termination rates and we think it's reasonable to ask that the regulator follows this process."
On Friday, ICASA announced it would put the implementation of new MTRs on ice until MTN's 399-page South Gauteng High Court application to have the new rates set aside had been seen to.
The case was scheduled to be heard on 25 February, but ICASA says it will request a later date and has proposed delaying implementation of its new MTR structure until May.
Democratic Alliance shadow minister of communications Marian Shinn believes the postponement indicates the possibility of a negotiation, which she says is preferable to time and cost-wasting legal fights.
David and Goliath?
Shinn says, while it would be good to resolve the issue soon to benefit consumers at the end of the day, and to boost the use of mobile data and Internet access, "we must at the same time encourage investment from the private sector into [SA's] communications infrastructure".
On the other hand, she says, Vodacom and MTN also need to be mindful of the need to take real, public steps to demonstrate that "rampant profitability" is no longer a hindrance to the growth of the use of mobile data.
MTN SA CEO Zunaid Bulbulia said on Friday the operator's decision to take the legal route should in no way be seen as an attempt to keep the costs of telecommunications high "as inferred in certain quarters".
Shinn also notes, however, that Cell C and Telkom Mobile are "hardly new kids on the block" and believes ICASA should rethink the degree of asymmetry it has proposed.
World Wide Worx MD Arthur Goldstuck says while ICASA's intention with lower MTRs was previously about the cost benefit for consumers, this time around the authority made it clear the benefit was for the smaller players.
"But the reality is that that they are not such small players anymore. Cell C has 12 million customers and Telkom Mobile has the backing of Telkom behind it."
He says the two-month delay will not have much impact on the two. "Of course, ICASA's decision will help tremendously with becoming operationally more effective, but this delay will not break either Cell C or Telkom Mobile."
Ovum analyst Richard Hurst, on the other hand, says Cell C and Telkom Mobile are likely to be unhappy about the delay. "These players would obviously like to take immediate advantage of the new MTR structures, in terms of rates for consumers, as well as revenues accrued to them."
However, says Hurst: "I think that in the long run the regulator will have its way, benefitting the smaller network operators."
IDC analyst Spiwe Chireka says the key issue at hand is not the MTR cuts per se - but the degree of the cuts. "The latter is what I believe the operators have a gripe with."
Shinn adds Vodacom's concern about how the rates were arrived at may also be high on the list of concerns. "There was some dodging by ICASA last week around how they arrived at the rate and this is possibly one of the arguments being put forward by the cellphone guys."
Hurst and Chireka both feel MTR cuts are inevitable. While Hurst thinks the legal challenge is more of a delaying tactic and that operators are delaying the inevitable with opposing ICASA's decision, Chireka says the possibility of milder rates exists.
"So, the MTR cuts are inevitable and will happen, [but] we could see the sliding scale extended a bit more and the regulator taking a more gradual approach to the tariff cuts," says Chireka.
"Ultimately, I believe it will be up to MTN and Vodacom to propose viable alternatives as opposed to stopping at saying the current options don't work. The MTR cuts are needed in order to balance out the market, and my view is the regulator and courts will have to base their decision on the greater good of the industry - popular (or unfair) or not."
Goldstuck sees the ultimate picture for SA's mobile sector as being the one ICASA has in effect painted for 2017, in which termination rates will hit a low of 10c - apart from for players with less than 10% revenue market share (which will have the benefit of a 20c MTR).
"The MTR element becomes a negligible cost for consumers in this case and still a significant income for networks - nothing like it has been in the past, but in terms of it not being a real cost for them."
He says "roll on 2017" - when not only will everyone be happier, but the networks would have also come up with a strategy to address any loss of revenue by then.
"[Operators] should have been prepared for this for a long time anyway, but they have been caught flat-footed because they did not want to address the fact that they had to move on. It's a bit like the newspaper industry not wanting to acknowledge times are changing and it's the time for digital.
"But the main networks have had more than a decade of really reaping massive benefits from interconnect fees and they need to move on now."
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