Telkom has expressed dismay at communications regulator Icasa’s draft decision to cut fixed call termination rates – the amount one network charges another to carry calls between them – more “drastically” than it has mobile termination rates.

The operator, which historically maintained a monopoly over fixed-line telephony in South Africa (long since expired), said it “welcomed” the slashing of termination rates to be more aligned with costs, but has called for parity in the termination rates for fixed and mobile calls.

The regulator said in a notice published in the Government Gazette last Friday that it wants mobile termination rates slashed from 9c/minute today (13c for smaller operators) to 7c (9c) on 1 July 2024 and 4c (4c) on 1 July 2025. The rates have been coming down for the past decade, from an historic high of R1.25/minute.

The proposed cuts to fixed-line termination rates is even more aggressive: from 6c/minute now, Icasa wants these reduced to 4c from 1 July 2024 and to just 1c from 1 July 2025 – a cut of 83% in just 15 months. (There is no asymmetry in fixed call termination.)

“Telkom is concerned by the authority’s decision not to align the fixed termination rate with the mobile termination rate, but rather to drastically reduce the fixed termination rate to an amount that is drastically lower than the mobile termination rate,” the company said in response to a query from TechCentral about the draft regulations.

The argument for parity presented is based on the notion that the distinction between fixed and mobile calls is “blurring”, with fixed-mobile substitution in the voice market increasing. “These trends make the average cost of terminating a fixed call the same, if not more expensive, than terminating a mobile call,” it said.

‘Some reason for it’

But Kerron Edmunson, a legal and regulatory specialist, said Telkom has ignored the extensive investigations that Icasa has undertaken to determine the changes to call termination rates.

“Icasa would have taken information from all the operators and used experienced economists to come to their conclusions,” she said. “The outcome would be based on a scientific form of modelling as part of a detailed process. So, if there is no parity between fixed and mobile rates, there must be some reason for it.”

Another factor directly affecting Telkom and rival Cell C as challengers in the market to larger incumbents Vodacom and MTN is the loss of asymmetry in the rates between the smaller operators and their more established competitors. In an asymmetric arrangement, smaller operators pay the larger ones less than the larger ones pay them in return for call termination as part of a regulatory effort to level the playing field.

In August, Cell C CEO Jorges Mendes called on Icasa to continue to skew wholesale rates in the company’s favour to ensure it can compete effectively against Vodacom and MTN.

The new draft regulations, however, exclude Telkom and Cell C from enjoying the benefits of asymmetry, with only new market entrants allowed asymmetric rates and only for three years after their establishment.

“It’s too little too late for the small operators. All the asymmetry is doing is showing that there are cost differences between small and large operators. Asymmetry is supposed to help new and small operators to gain an advantage in the market, but it was nearly 10 years into Cell C’s existence that Icasa began considering asymmetric rates,” said Edmunsen.

“From a competition point of view, it means very little at the moment,” she said.

She added that the effort Icasa has put into the voice market has coincided with a shift in consumer behaviour leading to the mass adoption of data-based calls over the internet – particularly using WhatsApp. This means the drop in termination rates does not have as significant an impact in the market as it would have when the regulator’s investigations into the call termination market began 14 years ago.