Slim savings from interconnect cuts

Savings resulting from the reduction of call termination rates have presented a double-edged sword to consumers, who will now have to pay higher rates for fixed-line calls to 8ta and Cell C's networks.

Meanwhile, no savings will be offered to consumers for mobile-to-mobile calls.

As of 1 March, the Independent Communications Authority of SA's (ICASA's) recently-published interconnect regulations will be enforced. Subsequently, call termination rates across the board will drop from 89c per minute to 73c per minute.

Further cuts are expected to 56c a minute by March 2012, and to 40c by 2013. Off-peak cellphone termination rates will drop to 65c a minute by March this year and 52c a minute by March next year, with the off-peak charges also dropping to 40c a minute by March 2013.

Telecoms companies including ECN, Vox Telecoms and Neotel have announced the reduction will filter directly through to their retail prices, resulting in an overall reduction in their voice tariffs.

However, another element of the newly-published regulations has offset the savings, as operators note that calls to 8ta and Cell C will be charged at a higher rate.

The regulations have also made it permissible for operators that hold less than 25% market share to charge 20% above the maximum regulated rate. This includes every operator, bar Vodacom, MTN and Telkom.

While Cell C has yet to confirm whether it will exercise its right to charge the higher termination rate, 8ta says it will charge all licensees a higher termination rate, as approved by ICASA. This is due to the fact that 8ta has a higher cost structure than the incumbent mobile operators.

“This rate is still far below the call termination rate, which the incumbent mobile operators have been charging other licensees over the last 10 years,” explains 8ta.

ECN has already begun preparing customers for a change in voice tariffs.

“Dear Valued Customer, You may noticed that call charges to Cell C and 8ta are higher than those to Vodacom and MTN,” notes the company in a statement to clients.

“This is because ICASA has permitted Cell C and 8ta to charge higher call termination rates than Vodacom and MTN, which unfortunately has resulted in higher call costs to these operators. ICASA has granted interconnect asymmetry to these 'new entrants' in order to promote competition in the mobile market.

“Fortunately, the current call volumes to these operators are such that the difference will not significantly influence the overall price decrease,” says the statement.

Vox Telecom chief commercial officer Murray Steyn highlights a similar situation: “The revised interconnect regulations have resulted in an increase in interconnect rate to certain networks, Cell C off-peak and Telkom's 8ta in particular.”

“Where this is the case, Vox will charge an increased rate to its customers as the majority of its cost component is made up of these network charges,” he states.

Neotel is also planning price cuts next week, also noting that calls to 8ta and Cell C will be charged at a higher rate.

Meanwhile, the incumbents explain that the scales of comparison must be factored into whether they would be in a position to offer retail savings on the back of lower termination rates.

“Since Vodacom is a net receiver of calls, reductions in termination rates do not produce savings for Vodacom to pass on to customers - in fact, the opposite is true.

“Over time, lower termination rates do stimulate competition and experience has shown that this is the mechanism that drives a reduction in call charges,” explains Vodacom spokesperson Richard Boorman.

While MTN did not comment by the time of publication, the company previously stated there is no link between interconnect rates and retail pricing.

“MTN has, at numerous occasions, highlighted that there is no direct link between mobile termination rates and retail prices; some prices go up, some stay the same, and others decline as part of normal competitive activity, not regulatory intervention,” explains Robert Madzonga, chief corporate service officer of MTN SA.

Fixed-line incumbent Telkom previously stated it had filtered the last interconnect rate cut into retail savings for its customers, but is still considering its options regarding the next interconnect cut and will comment at a later stage.

Nonetheless, ICASA is confident that over time the regulations will begin impacting the retail price. “The objective of reducing termination rates is to reduce the barrier to entry in the provision of off-net calls, thereby fostering competition and a dynamic reduction in retail prices over time,” concludes the authority.

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