Incumbents not hurt by rate cuts - Gillwald - TechCentral

Incumbents not hurt by rate cuts – Gillwald

Alison Gillwald

Reductions in the fees that mobile operators charge each other to carry calls between their networks have not hurt them financially, as they claimed they would. Nor have they led to higher retail prices, lower investments or retrenchments in the sector.

These are some of the findings by Research ICT Africa, which were presented to parliament on Friday by the research body’s executive director, Alison Gillwald. Parliament’s portfolio committee on communications is holding hearings this week on the cost of communications in South Africa.

Gillwald says the interconnection fees the operators charge each other — they’re also known as termination rates — are “still far above the cost of an efficient operator” and should come down faster.

“The regulator Icasa’s glide path [in reducing the rates]is too slow and will not take mobile termination rates down to the cost of an efficient operator,” a Research ICT Africa policy brief presented to MPs says. “As a consequence, South Africa continues to be among the most expensive countries in Africa for prepaid mobile usage.”

Above-cost termination rates are “one of the main obstacles to fair competition”, which is needed to bring down retail tariffs.

Because termination rates remain above the cost of an efficient operator, dominant players are still able to retain customers with significantly lower on-network prices, Research ICT Africa says.

Icasa has been forcing down termination rates in recent years, and they will reach 40c/minute in March 2013, from a high of R1,25/minute three years ago. The regulator is expected to reduce the rates further after next year, with pressure to do so mounting from smaller market players, including Cell C, whose CEO Alan Knott-Craig wants the rates reduced to 15c/minute. Knott-Craig also wants a substantial degree of “asymmetry”, whereby smaller players, including Cell C, pay the bigger operators less for cross-network calls.

Research ICT Africa says in its policy brief that Vodacom, the country’s largest mobile operator as measured by subscriber numbers, has enjoyed an improvement in its net interconnect position with the reduction in the rates. “[Former] Vodacom chief financial officer Rob Shuter was quoted in May 2011 as saying that Vodacom would lose R1,5bn in revenue and would incur a net interconnect loss of R500m due to the March 2011 cut imposed by Icasa,” it says. “In reality, Vodacom’s annual interconnect revenue dropped by R693m, while its termination rate expenditure decreased by R759m, resulting in an improvement of R66m in Vodacom’s net interconnect position.”

In addition, the brief says that reducing termination rates has not led to a “waterbed effect” — some operators had warned that cutting the rates could result in an increase in retail rates. However, prices haven’t come down substantially, either.

“The belated and insubstantial mobile terminate rate reductions in South Africa … have failed to produce the positive competitive outcomes witnessed in countries such as Mauritius, Kenya, Namibia and Ghana,” Research ICT Africa says. “In South Africa, dominant operators have been able to withstand short-term pricing pressure because the mobile termination rate reductions have apparently been too small to allow marginal late entrants to sufficiently undercut incumbent operator prices.”  — (c) 2012 NewsCentral Media

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