Icasa must favour the little guys - TechCentral

Icasa must favour the little guys

Duncan McLeod

Duncan McLeod

Ladies and gentleman, we have a price war. South Africa’s mobile operators are competing more aggressively with one another on price than at any other time in the industry’s 20-year history.

Prepaid rates, in particular, have tumbled. And, whatever telecommunications industry bosses argue, it’s due in no small part to regulated reductions in the wholesale fees the operators charge each other to carry calls between their networks. These “termination rates” fell to 40c/minute on 1 March, from a startlingly high R1,25/minute in peak times a few years ago.

They need to come down further.

High termination rates favour larger industry players in that they make it harder for new, smaller ones to compete effectively. Because new entrants have fewer customers than the incumbents, most of their calls are placed to other networks. High termination rates therefore make it more difficult for them to compete on price and to win customers.

Cell C, licensed 13 years ago as South Africa’s third mobile operator, struggled to gain a strong foothold in the market — arguably as much because of bad strategy as an unfavourable regulatory environment — but in recent years has emerged as a street fighter willing and able to take on the big boys.

Under former CEO Lars Reichelt, it began work on a much-needed third-generation (3G) mobile network. Reichelt also infused a sense of coolness into what had become a stale brand.

Now, under the direction of former Vodacom boss Alan Knott-Craig, Cell C has launched an all-out assault on MTN and Vodacom, slashing rates and dramatically simplifying tariff structures in an industry that had made an art form of product complexity.

It’s clear Knott-Craig has rattled his competitors, especially Vodacom. MTN has come to the party, too. Last week it cut the cost of its One Rate anytime prepaid plan. Perhaps more significantly, it felt compelled to reveal the average cost of a call on its most popular prepaid plan, MTN Zone: 88c/minute, it says. Zone is complex, providing discounts based on time of day, network load and caller location, but appears to be hugely popular among MTN customers — the operator claims churn to other networks is less than 2%/month.

All this leaves 8ta in a pickle. The Telkom-owned fourth network (which may or may not be changing its name soon) is barely out of nappies, yet is being forced into a bruising battle. It’s showing it’s prepared to fight, though, last Friday chopping its prepaid rates to 95c/minute on per-second billing, undercutting Cell C. But whether the loss-making 8ta will ever win more than a sliver of market share in voice is debatable.

Its real advantage — the one it needs to draw on if it’s going to succeed — is in the still fast-growing data market. Its exclusive access to a big chunk of spectrum that can be used to build a 4G broadband network will be crucial.

Still, 8ta arguably has a valuable role to play in the voice market in keeping the bigger players in check. Even Vodacom CEO Shameel Joosub conceded last week it may make sense for 8ta to continue to enjoy an “asymmetric” termination rate regime, where it receives more from other operators than it pays them.

Joosub and MTN SA boss Karel Pienaar argue that after 13 years Cell C doesn’t deserve the same as 8ta. It’s true that asymmetry, if too aggressively applied, can distort the market and lead to inefficiencies. But it’s the smaller players, especially Cell C, that are leading the charge to lower retail prices. The regulator must find ways of encouraging them without intervening in ways that could damage the industry.  — (c) 2013 NewsCentral Media

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