Wait for interconnect dust to settle before signing new LCR deals

South African businesses that rely on cellular least-cost routing (LCR) services to keep telecom costs down should not sign new contracts with their LCR providers until there is more clarity about mobile interconnect fee structures and regulations from the telecom regulator, Icasa.

That's the word from Louise Hepburn, telecommunications product manager at Itec. She says the industry still has little clarity about how far and how quickly interconnect tariffs are going to fall in line with Icasa's drive to push interconnect tariffs down.

Mobile interconnect rates, or mobile termination rates, are the charges that mobile networks (MTN, Cell C and Vodacom) pay for connecting their subscribers to networks of their rival operators.

Icasa and the Department of Communications want these tariffs to be slashed to promote competition in the telecom market and to make telecom costs more affordable. The mobile network operators pre-empted Icasa earlier this year by cutting rates from R1.25 to 89c per minute.

Hepburn points out that this initial reduction in mobile termination rates has already eroded some of the savings companies can achieve through LCR, although there is still a business case for it.

Icasa wants interconnect tariffs brought down even further - to 65c by July 2010, 50c in July 2011 and 40c in July 2012. The operators are pushing back against Icasa and claim their businesses and the industry will suffer if they are forced to bring mobile termination rates down so quickly and so dramatically.

“It remains to be seen whether Icasa will get its way, or whether interconnect fees will be brought down more gradually and gently, but it is clear that these rates will be forced down substantially,” says Hepburn. “For that reason, we believe that the long-term trend will be away from LCR. The faster and more dramatically interconnect tariffs drop, the less of a business case there is for LCR.”

For that reason, Itec is advising its customers to hold back from signing long-term LCR agreements until there is more clarity in the interconnect environment and more detail about how lower interconnect tariffs will affect the retail costs of calls, says Hepburn.

“Companies should also be aware of the many other telecom options they have as a result of more competition in the market,” she adds. “For example, Internet Protocol telephony (IP telephony) solutions can help them drive down their telecom costs by up to 30%. With fixed-line interconnect tariffs lower than ever before, the IP telephony business case is very strong.”

Hepburn says companies should work closely with service providers that are able to give them independent advice about how they should optimise telecom spending. IP telephony and LCR are both important technologies for companies that want to save money on their telecom bills, but should be considered in a holistic manner alongside strategies such as vendor consolidation, she concludes.