Rate cut met with scepticism

The Department of Communications' (DOC's) announcement yesterday on interconnect rates has left many in the industry confused and concerned.

Communications minister Siphiwe Nyanda yesterday announced to the Parliamentary Portfolio Committee on Communications that the department and the operators had come to a decision to cut rates peak rates by 36c by February next year.

While analysts and smaller industry players say even a small drop is good, many are concerned the operator agreement made with the department is just a way to appease the public and government.

John Holdsworth, CEO of ECN, the alternative telco that has spearheaded the rate cut debate, says it is clear the minister has been lobbied. He says the company welcomes the rate cut; however, the public and government must not lose sight of the real issue.

According to Holdsworth, MTN and Vodacom have significant market power and the agreement to drop rates is simply a public relations exercise. “It is an attempt by the incumbents to appease the politicians, since the debate has knocked their brand image,” he says.

The minister also announced the operators agreed to introduce products during the Christmas period that would see consumers pay less during a high-traffic month. However, Dominic Cull, telecoms lawyer from Ellipsis Regulatory Solutions, says the distinction must be made between a real retail cost drop and “illusionary” cuts.

“I would remain sceptical about the extent to which there will be any real decrease in retail rates for consumers as opposed to illusory reductions created through the traditional massive marketing spend of the mobile networks in the lead up to the festive season.”

He says the announced rate cut will unlikely make a large impact on competition in the market.

Nyanda said the department has withdrawn its policy directive that would have seen the interconnect rate cut to cost. Instead, the minister has agreed to allow the operators to follow a glide path, which could see slow rate cuts over several years.

Pasco Risk Management senior analyst Richard Hurst says the bigger concern for the operators is not yesterday's instant cut of 36c, but where the glide path ends.

However, he says they will also be pleased the date has been changed from the expected November deadline to next year. “February 2010 is simply a more reasonable deadline. It seems that all parties are meeting each other halfway.”

Operators will be pleased to see the back of the debate around interconnect, because it has hammered reputations and resulted in several unrealistic promises around retail rate cuts.

“We are pleased that the industry has found an early solution to the issue of reducing mobile termination rates and thank the minister for the leadership role he has played in this process,” said Shameel Joosub, MD of Vodacom SA, in a statement. “In addition to the reduction in call charges from fixed to mobile, we believe this will encourage greater competition in the mobile market and, therefore, lower prices for all consumers.”

MTN has been given an extra month to implement its rate cut and will only be expected to introduce the 89c peak rate in March.

“MTN has been involved in weeks of intensive discussions on the interconnect issue with the Department of Communications and bilateral discussions with other mobile operators,” says Zolisa Masiza, group executive for regulatory affairs at MTN. “There are a number of aspects of the minister's statement that MTN would like to study before commenting in any detail on the announcement.”

Cell C had not responded to ITWeb's query by the time of publication.