Incoming mobile newcomer Telkom Mobile's call for an asymmetrical interconnect rate has less to do with offering an attractive retail package and more to do with sustaining its R6 billion investment, argues an analyst.
Hearings are currently under way before the Independent Communications Authority of SA (ICASA), with Telkom calling for an 89c per minute rate to connect on MTN, Vodacom and Cell C's network, with a reciprocated rated of 93c.
Previously, Telkom justified the dispute, saying: “Telkom is preparing to launch its mobile network before the end of this year and will be seeking to provide subscribers with an attractive alternative to the currently available mobile offerings. To enable interconnection with MTN's network, Telkom proposed certain terms to be included in the MTN interconnection agreement.
“The terms proposed by Telkom include a reasonable mobile termination rate (MTR) that reflects Telkom's mobile network cost as a new entrant to the mobile market. Telkom needs a reasonable MTR in order to be able to compete in the South African mobile space and offer subscribers attractive retail rates.
“MTN has rejected certain of Telkom's proposed terms. As a result, Telkom lodged a dispute with ICASA to resolve the deadlock. The dispute was referred by ICASA to the Complaints and Compliance Committee (CCC) to resolve the dispute.”
Consumers misled
The point of contention lies with the company's assertion that the lower interconnect rate would filter through to its retail offering.
South African consumers have been under the impression that lower interconnect rates would mean cheaper cellular costs.
Both ICASA and the Department of Communications recently said that interconnect rate cuts would take years to filter into better retail prices and eventual consumer benefit.
“We have always maintained that the hype surrounding the whole interconnect debate was misguided,” says WWW Strategy MD Steven Ambrose. “There never was any correlation between the interconnect and the cost of cellular calls, and the Department of Communications was simply being populist in its advocacy of having these cuts in the name of lower telecommunication costs.”
ICASA and the DOC have argued that interconnect rate negotiation had more to do with improving competition in the industry, which over time would improve the cost of communication in the country.
As a result, Telkom's argument that lower MTRs would help the company compete in the mobile space has more weight than the retail argument, maintains Frost and Sullivan industry analyst Spiwe Chireka
Sustaining business
Chireka explains that while the company will have to come to market with a competitive offering, interconnect rates will be absorbed into other areas of the business to ensure longer-term sustainability.
She argues that the fight for an asymmetrical rate makes good business sense for Telkom Mobile, but will have little effect on retail pricing. “It's not good for the consumer, but it's not bad for the consumer either.”
The focus for Telkom Mobile right now is to ensure that it is able to absorb the costs of sustaining the new business and interconnect pricing will have a big impact on revenue contribution, Chireka explains.
“The call for an asymmetrical rate is really for business stability, especially since Telkom Mobile will start off operating at a R6 million loss.”
Chireka says she supports ICASA's goals to achieve cheaper communication in the country, but insists that, at the end of the day, the mobile operators are businesses that need to make a profit.
Neither ICASA nor Telkom opted to comment at this stage, as the matter is still sub judice.
Share