Mobile operators are keeping their thoughts about interconnect under wraps, following the Department of Communications' decision to cut interconnect rates to cost by November.
In an interview with ITWeb from Geneva, on Saturday, DOC director-general Mamodupi Mohlala said the DOC had decided to intervene in the interconnect debate by forcing the Independent Communications Authority of SA to regulate mobile interconnect rates to cost.
She said the DOC will present the policy to the Parliamentary Portfolio Committee on Communications when it meets this week, and will encourage its implementation. The directive is the first of a three-phase initiative the department hopes to implement over the coming months to stem the cost of communications in SA.
Win some
Cell C stands to gain the most from lower interconnect fees, having faced an uphill battle to gain market share since it opened shop. “Cell C has always been in favour of lower interconnection rates. However, until we have received and reviewed the policy, we are not in a position to comment,” says Nadia Bulbulia, Cell C's executive head of regulatory affairs.
World Wide Worx MD Arthur Goldstuck says the fact that Cell C built a customer base of six million customers is astonishing, despite the high barrier to entry it has faced.
Vodacom MD Shameel Joosub says the company has not yet had a chance to review the proposed directive and will not comment until it has seen it.
However, Vodacom CEO Pieter Uys was previously outspoken on the matter. He believes the operators will be financially damaged by the proposed dramatic cut in interconnect fees. Uys also threatened that operators will stop investing in network roll-out and upgrades, for which many operators use interconnect revenues.
However, Goldstuck says: “That argument is infuriating.” He says interconnect revenue was never meant to subsidise the roll-out and upgrade of networks. Goldstuck adds that it's disingenuous to present interconnect as something it's not.
“Network performance deteriorated, despite the huge cash cow from interconnect,” he adds.
Neither Telkom nor MTN had responded to ITWeb's queries by the time of publication.
Telkom could compete
Despite the industry excitement, analysts warn there may not be an immediate drop in consumer rates. While Goldstuck admits the DOC's policy directive will make a major impact, it needs to be accompanied by another that will make actual call costs more transparent.
“Rates are still too obscure, even in the prepaid market, and that's where we need to see the biggest action,” he says.
Irnest Kaplan, MD of Kaplan Equity Analysts, says interconnect rates do have a tenuous link to consumer rates; however, it is primarily a wholesale issue. He says the concept is complicated and cannot be looked at in terms of the individual revenue made by each of the operators.
He says operators are unlikely to drop consumer rates immediately as many hope. He says, between MTN and Vodacom, the actual costs are nullified; however, they will lose revenue they gained from Telkom's contribution to their interconnect rates.
A drop would mean Telkom would pay the operators less, and Kaplan says it's more likely Telkom will begin to drop its own consumer prices.
Lose some
Kaplan says there will be a financial impact on the operators, but adds it will not be a “crippling amount”.
Lindsey Mc Donald, analyst from Frost & Sullivan, says there will be a revenue impact and this may affect network upgrades and roll-out. ”It was a source of income they never had to work very hard for and it has become a big part of their business model.”
However, she says they have seen it coming for a while and have already started to pad average revenue per user in other ways. “The actual impact will be less significant over time, when the operators rebalance the income from the loss of interconnect.”
The second tier operators like ECN and Vox Telecom will also be impacted. A large part of their business model also relies on the interconnect rate. They will also have to change their business model.
The markets have been slow to react to the DG's announcement and seem to be adopting a “wait and see” attitude. This morning, MTN's share was 1.39% down on Friday's close of R124.95, to trade at R124.30. Vodacom was down a similar percentage, trading at R53.50, 1.65% down after closing at R53.95 on Friday. Telkom was 3.25% higher this morning, trading at R42.90 after closing on Friday at R41.84.
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