Cell C CEO Jorge Mendes has said the mobile operator was “handicapped from the start” by the actions of rivals MTN and Vodacom, which both jacked up call termination rates prior to their new rival’s entry into the market in 2001.
Speaking to the TechCentral Show, Mendes said the move by Vodacom and MTN to raise mobile termination rates – the fees the operators charge each other to carry calls between their networks – was deliberate at a time when voice calls were the most significant contributor to operators’ revenues and profits.
Mendes is a former senior executive at Vodacom, having spent 23 years in various roles at the company. He was chief officer for Vodacom’s consumer business unit for four years before leaving the company in January 2023.
“If you look at termination rates, they were pretty much not there, but with the entrance of Cell C, those termination rates skyrocketed. If someone has all the market share and you are going to land on someone else’s network all the time … you are on a hiding to nothing,” Mendes said. “Cell C got handicapped at the start – that’s the truth.”
Over the years, intervention by communications regulator Icasa has led to a steady decline in call termination rates, which has contributed to a reduction in the cost of retail voice calls in South Africa.
For some years, Cell C has enjoyed asymmetry in call termination rates – meaning it has charged larger operators such as Vodacom and MTN more to carry calls on its network than they did in reverse. This was done to give Cell C, as a smaller operator and late entrant into South Africa’s telecommunications market, the opportunity to compete with incumbents Vodacom and MTN on a more level playing field.
Asymmetry
According to Mendes, this difference is currently 4c/minute in favour of Cell C. However, Icasa in March proposed slashing call termination fees even further and included in its proposal the removal of asymmetry between the operators – keeping the privilege open only to new operators who have been in the market for three years or less. Mendes said he disagrees with Icasa’s plan.
“We have calculated somewhere between R270-million and R300-million would disappear [from Cell C’s revenue line should asymmetry in the rates be removed]. Cell C has had the cheapest call rates for more than 10 years; no one has followed. If the logic is that this will bring prices down, the others have not brought prices down because they have dominance in market share,” said Mendes.
Read: Icasa too aggressive in cutting fixed termination rates: Ispa
This dominance has allowed the bigger operators to create an on-net strategy that has increased the likelihood that customers will move to their networks. Since there are no interconnect fees to be paid for calls over the same network, larger operators can offer cheaper rates, luring customers away from smaller operators whose cost to call most people attracts interconnection charges. For this reason, Mendes said asymmetry in termination fees should be based not on time in the market, as proposed by Icasa, but on market share instead.
“I would say north of 20% [market share should be the threshold], because then you are starting to compete almost like for like in terms of the number of customers versus voice traffic. [Circuit-switched voice calling] is a declining revenue stream, and over time, more and more calls will be made over WhatsApp and the like. But I think that while it is still there, you need to protect that revenue stream, and in a responsible way, while taking good prices to the market,” said Mendes. – © 2024 NewsCentral Media
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