The Independent Communications Authority of South Africa (Icasa) has hinted that on-network calling plans such as the one recently launched by Vodacom could be anticompetitive and may require regulatory intervention.

Big operators often take advantage of their larger customer bases by offering sizeable discounts for calls made between numbers on their own networks. However, because smaller players can’t match these offers, the practice may come to be regarded as anticompetitive.

This was certainly the intimation from Icasa on Wednesday. The authority issued a statement to explain its reasons for turning down a request from Cell C to suspend Friday’s cut in mobile termination rates. Cell C wanted an urgent review of the regulations to test their efficacy in promoting competition.

Termination rates, the fees operators charge one another to carry calls between their networks, have been coming down on a three-year glide path. From a high of R1,25/minute at peak times a few years ago, the rate will drop to 40c/minute on Friday.

Because operators don’t have to pay these interconnection fees for calls carried on their own networks, they can offer consumers big discounts. This not only encourages consumers to get their friends and family to use the same network, but potentially disadvantages smaller operators which send a higher proportion of calls to rival networks.

Without naming Vodacom explicitly, Icasa’s statement on Wednesday suggests it may probe the operator’s new Free4Sho on-net calling plan. Free4Sho offers Vodacom customers 57 minutes of free on-network talk time per call after they’ve paid R3,60 (R1,20/minute) for the first three minutes of the call.

This means Vodacom users can make an hour-long call for an effective rate of just 6c/minute — a figure far below the current termination rate.

Vodacom spokesman Richard Boorman says it is “hard to understand how offering customers better value could be construed as being negative and not in their interests”.

But Icasa says it is “concerned that the pricing of an on-net voice call may be below the termination rate, an indication that operators are pricing on-net calls at below the true cost of a call, or that the current termination rates are still considerably too high”.

Consequently, it intends to conduct a market review to determine whether further cuts in termination rates should follow the 1 March reduction. It is “also conceivable that termination rates should tend towards zero over time”.

According to Icasa, high termination rates prevent smaller players and new entrants from competing effectively. Instead, they allow large players to offer on-net voice prices that are lower than the off-net calls a smaller player may charge its customers. “This may represent margin squeeze and predatory pricing.”

Other countries have addressed the problem by imposing flat rates across networks or creating a price floor. Some regulators have also opted to impose anticompetitive penalties on operators found to be pricing in this manner.

Last month, the French Competition Authority imposed fines of €117,4m on Orange/France Telecom and €65,7m on SFR for anticompetitive practices. It found that the Orange/France Telecom on-net plans threatened the long-term viability of France’s third operator, Bouygues Telecom.

The competition authority found that allowing unlimited calls to users of the same network was anticompetitive because each operator has a monopoly for all termination on its own network. Cost differences between on-net and off-net calls also don’t justify the substantial retail price difference between them, and smaller operators can therefore only compete with larger ones by offering cross-network benefits which they can ill afford, it said.

Icasa has attempted to mitigate the benefits enjoyed by large networks by using “asymmetry” in termination rates, where smaller operators pay larger operators lower rates than the other way around.

Cell C has said it wants to see this asymmetry continued or even strengthened; rival MTN has slammed asymmetry, saying it distorts the market. Alongside the three-year reduction in termination rates, asymmetry fell from 20% to 15% last year and will decline to 10% on 1 March this year.

Icasa says it will “urgently review the structure of pricing, including transparency in the market, and will examine the necessity for this form of intervention on an urgent basis”. — (c) 2013 NewsCentral Media