Telco price war begins

Consumers will feel the effects of the interconnect rate cut sooner than expected as an alternative telco price war begins.

Several local alternate players, joined by the voices of fixed-line operator Telkom, virtual mobile operator Virgin Mobile and third mobile operator Cell C, have started a chorus of lower consumer call rates.

Last week, Department of Communications (DOC) minister Siphiwe Nyanda announced to the Parliamentary Portfolio Committee on Communications that the mobile operators had agreed to lower interconnect peak rates by 36c, to 89c, by March next year.

The minister also promised the committee that the operators would drop rates in December, calling it the “big early Christmas and Easter present that we [the DOC] can give to the nation”.

At the moment, the new product is only being rolled-out through Pick n Pay; however, Virgin says other retailers will be signed on in the new year.

"As previously stated, we have always been in favour of reduced and asymmetrical interconnect rates as a way to enhance competition. We are now demonstrating our commitment to this by introducing a peak rate below the current interconnect rate,” says Virgin Mobile CEO Steve Bailey.

Cell C has also thrown its first punch, hacking its cell rates by 47% on its prepaid offering; however, the new rate will only come into affect in December. Cell C's “Christmas gift” to consumers will see an all day flat rate of R1.50 introduced for Hola 7, Winc and Gospel Life products.

Subscribers will also see a messaging flat rate of 50c per SMS, all day.

Mobile subscribers will not be the only beneficiary of lower rates, as consumer VOIP offerings will also see rate cuts by December.

Vox Telecom's Telepreneur customers will also enjoy a rate reduction. While the company has not confirmed the actual cut with ITWeb, reports indicate it will drop its offering from the current R1.49, to R1.05 from the beginning of the holiday season.

Earlier this month, First National Bank released its 99c peak rate to mobile phones. The bank tentatively entered the telecoms arena in May, when it released its broadband and VOIP services to customers at an already competitive rate. It initially started with a peak call rate to mobile at R1.79, which even then beat out MTN and Vodacom rates.

While the new rate pre-empted the interconnect rate cut announced last week, the new cost is competitive.

Fixed-line operator Telkom has not directly announced any savings on products, but says it will pass savings to consumers.

The company stands to gain the most from the interconnect rate cut, since it pays the mobile operators far more than the operators pay it for termination. To terminate on Telkom's network, the operators currently pay 29c during peak times and 16c off-peak. Even compared to the new mobile termination rate, Telkom's termination is a steal.

The company will pocket a chunk of savings off the new interconnect rate, and analysts have predicted Telkom consumer rates will plummet. Telkom SA MD Pinky Moholi says she expects the real savings to come through when the new rate is implemented.

“The reduction in mobile termination rates will enable Telkom to pass on substantial savings to Telkom customers. We are currently assessing the full impact of this,” she says.

Neotel has not announced a corresponding product, but also says the new rates will go a long way to relieving the high cost of communications in the country. “We know that a drop in interconnection tariffs is long overdue. This drop will go a long way in alleviating pressure for the consumer and is a step in the right direction,” says Wandile Zote, executive head of communications at Neotel.

The second national operator hopes the rates will drop further. As a new market entrant, it will also be looking for asymmetrical rates, allowing it to pay less than the established operators to terminate.