Close Menu
TechCentralTechCentral

    Subscribe to the newsletter

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Facebook X (Twitter) YouTube LinkedIn
    WhatsApp Facebook X (Twitter) LinkedIn YouTube
    TechCentralTechCentral
    • News
      Meta takes on OpenAI and Anthropic in enterprise AI

      Meta takes on OpenAI and Anthropic in enterprise AI

      4 June 2026
      AI demand sparks 'chipflation' warning

      AI demand sparks ‘chipflation’ warning

      4 June 2026
      Amazon Prime launched in South Africa

      Amazon Prime launched in South Africa

      3 June 2026
      Amazon's long game in South Africa

      Amazon’s long game in South Africa

      3 June 2026
      Canal+ doubles down on sport to defend DStv

      Canal+ doubles down on sport to defend DStv

      3 June 2026
    • World
      Astronomers discover exoplanets with magnetic fields

      Strange winds reveal magnetic fields on distant ‘hot Jupiters’

      2 June 2026
      AI giant Anthropic files for landmark US listing

      AI giant Anthropic files for landmark US listing

      1 June 2026
      Dell guns for MacBook Neo with low-cost laptop

      Dell guns for MacBook Neo with low-cost laptop

      1 June 2026
      Nvidia's first CPUs to debut in Windows laptops this week

      Nvidia CPUs to debut in Windows laptops this week

      31 May 2026
      Watch: Bezos rocket erupts in fireball during ground test

      Watch: Bezos rocket erupts in fireball during ground test

      29 May 2026
    • In-depth
      What Wi-Fi 8 will mean for wireless networks

      What Wi-Fi 8 will mean for wireless networks

      1 June 2026
      Alfa's electric rebel - Alfa Romeo Junior Elettrica Veloce

      Alfa’s electric rebel

      29 April 2026
      Africa switches on as Europe dims the lights

      Africa switches on as Europe dims the lights

      9 April 2026
      The biggest untapped EV market on Earth is hiding in plain sight

      The biggest untapped EV market on Earth is hiding in plain sight

      1 April 2026
      AI, cybersecurity power standout year for Datatec - Jens Montanana

      The R16-billion tech giant hiding in plain sight

      26 March 2026
    • TCS
      TCS | Charge's R1.8-billion bet on an off-grid EV future - Charge chairman Joubert Roux

      TCS | Charge’s R1.8-billion bet on an off-grid EV future

      18 May 2026
      TCS+ | The Up&Up Group on the hidden cost of AI - Jason Harrison

      TCS+ | The Up&Up Group on the hidden cost of AI

      13 May 2026
      Michael Rossouw

      TCS+ | The retirement decision most South Africans get wrong

      6 May 2026
      TCS | The Cape Town start-up listening for TB with AI - Braden van Breda

      TCS | The Cape Town start-up listening for TB with AI

      4 May 2026

      TCS+ | ‘The ISP for ISPs’: Vox’s shift to wholesale aggregator

      20 April 2026
    • Opinion

      Clashing judgments leave South Africa’s crypto law unsettled

      2 June 2026
      The trap inside South Africa's banking MVNO boom - Pambos Soteriades

      The trap inside South Africa’s banking MVNO boom

      1 June 2026
      The hidden cost of social media age bans is everyone's privacy - Petrus Potgieter

      The hidden cost of social media age bans is everyone’s privacy

      29 May 2026
      Treasury's crypto crackdown is a betrayal of Mandela's promise - Duncan McLeod

      Treasury’s crypto crackdown is a betrayal of Mandela’s promise

      22 May 2026
      South Africa is sleepwalking into another AI policy failure - Celeste Labuschagne

      South Africa is sleepwalking into another AI policy failure

      20 May 2026
    • Company Hubs
      • 1Stream
      • Africa Data Centres
      • AfriGIS
      • Altron Digital Business
      • Altron Document Solutions
      • Altron Group
      • Arctic Wolf
      • Ascent Technology
      • AvertITD
      • BBD
      • Braintree
      • CallMiner
      • CambriLearn
      • CM Telecom
      • Contactable
      • CYBER1 Solutions
      • Digicloud Africa
      • Digimune
      • Domains.co.za
      • ESET
      • Euphoria Telecom
      • HOSTAFRICA
      • Incredible Business
      • iONLINE
      • IQbusiness
      • Iris Network Systems
      • Kaspersky
      • LSD Open
      • Mitel
      • NEC XON
      • Netstar
      • Network Platforms
      • Next DLP
      • Ovations
      • Paracon
      • Paratus
      • Q-KON
      • SevenC
      • SkyWire
      • Solid8 Technologies
      • Telit Cinterion
      • Telviva
      • Tenable
      • Vertiv
      • Videri Digital
      • Vodacom Business
      • Wipro
      • Workday
      • XLink
    • Sections
      • AI and machine learning
      • Banking
      • Broadcasting and Media
      • Cloud services
      • Contact centres and CX
      • Cryptocurrencies
      • Education and skills
      • Electronics and hardware
      • Energy and sustainability
      • Enterprise software
      • Financial services
      • HealthTech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Lifestyle
      • Motoring
      • Policy and regulation
      • Public sector
      • Retail and e-commerce
      • Satellite communications
      • Science
      • SMEs and start-ups
      • Social media
      • Talent and leadership
      • Telecoms
    • Events
    • Advertise
    TechCentralTechCentral
    Home » Opinion » Alan Knott-Craig » Interconnect: ‘the real story’

    Interconnect: ‘the real story’

    By Editor11 August 2009
    Twitter LinkedIn Facebook WhatsApp Email Telegram Copy Link
    News Alerts
    WhatsApp

    Alan Knott-Craig

    [By Alan Knott-Craig] I get really pissed off when there is good reason to change something but the status quo prevails because people who should know better spout nonsense about why there should be a change. This inevitably leads to an exchange of insults, which, in turn, results in nothing happening.

    So it has been with interconnect charges, or termination rates as some people call them.

    First some background, though.

    GSM cellular licences were granted to Vodacom and MTN on 30 September 1993. Then there were about 2m GSM users in the world. Today there are nearly 4bn users worldwide.

    Two of the great advantages of GSM were that users could make calls from one mobile network to another anywhere in the world and use their cell phones on GSM networks in other countries. This is why GSM became so widely accepted as the de facto cellular standard.

    Interconnect, or the practice of one network charging another for terminating calls routed to it, was therefore born. So if a Vodacom customer were to call an MTN customer, MTN would charge Vodacom since it had to bear the cost of carrying the second part of the call – an entirely justified reason for charging an interconnection fee.

    There was, however, little precedent for figuring out what to charge, though it should clearly have been based on the actual cost of carrying the call plus a fair profit. At that time there was no way to calculate the cost since GSM networks had yet to be built, not only in SA, but anywhere in the world.

    There was also the matter of interconnect between Telkom and the mobile operators. Now Telkom should have known its cost, but didn’t have a clue what that was, even though it had been around for some 100 years. So the interconnect rate from a mobile operator to Telkom was set at the rate Telkom charged its own customers for local calls – 21c/minute in peak times and 14c/minute in off-peak times. It could hardly charge more. And that set the tone for everything else. Hardly scientific, but a start.

    Using the same principle, and in the absence of any historical costing, the mobile operators were allowed to charge their local rate for their own customers – which back then was lodged with the regulator and approved by the same – at R1,30/minute, less Telkom’s local rate of 21c/minute, or R1,09/minute for terminating a call from Telkom. In retrospect, dicey logic.

    R1,09/minute was thus assumed (in the absence of any contrary evidence) to be a mobile operator’s cost of terminating another network’s call on their networks (which had yet to be built, never mind costed). But mobile operators had to start preparing COA/CAM (another stupid acronym for the cost of a call) and present these to the regulator, which they have done for some number of years already. Why? So that interconnect rates could be properly set when the regulator had a moment, between falling of his horse and snoozing on the couch.

    In 1994 you could buy $1 for R3. Today, on average, you can get $1 for R9. So roughly, the rand is worth a third of what it was 15 years ago.

    In 1994 Telkom charged 21c/minute for terminating a call from a mobile operator, and today it charges 29c/minute for the same privilege. That’s a  38% increase, but fair, bearing in mind that we still don’t have a clue after 115 years what it costs for Telkom to terminate a call, and few would care to find out. Anyway, the regulator approved this increase so it must have been okay.

    In 1994 Vodacom and MTN charged Telkom R1,09/minute to terminate a call from Telkom, and today they charge R1,25/minute. That’s a 15% increase over 15 years during which time the rand depreciated by 200%.  Fair, as long as the starting price was correct. But since the regulator, having had sight of the mobile operator’s costs, approved this price it must have been correct. Right? Wrong. The regulator was snoozing, again.

    In 1993 everyone thought that the best the mobile operators in SA could achieve together was 500 000 customers by 2003. Today there are nearly 40m customers in SA. Clearly whatever premise was used to cost the termination of a call on a mobile network in 1993 was incorrect. In everyone’s most considered opinion, there would always be more Telkom customers than mobile customers. Today Telkom has some 4m customers. So much for considered opinions.

    Since Vodacom and MTN charge Telkom R1,25/minute in peak periods to terminate a call on their networks today, they should clearly charge each other the same. The cost cannot change simply because the call originates from a different source. And that is what they do, including Cell C, and anyone else who wants to terminate a call on their networks.

    So what’s the controversy? Simple. In 1994 neither Vodacom nor MTN thought there would be any traffic of note between their relatively small networks and settled for a nominal 20c/minute rate for terminating each other’s traffic.

    By 1998, it was clear that their customer bases were going to be large and that the same cost would have to be levied for terminating any call, regardless of where the call came from. So they agreed, with the blessing of the regulator, to increase their terminating rate to each other to that which they were charging Telkom. This they did between 1999 and 2001. Cell C was happy to participate. This was the practice the world over. Nothing wrong with that.

    So, is there anything wrong?

    Yes, the point of departure, and the philosophy of how to set the cost for terminating a call from another network.

    The clearest philosophy is to prove what it costs to terminate a call on your network, add a fair profit, and then levy that cost to anyone who wants to terminate a call on your network.

    But lets say operator A is more efficient than operator B. Does that entitle operator B to charge more for terminating a call? No, since that promotes mediocrity, and could result in higher costs for customers.

    My view is that the regulator should consider the costs of all networks, and find, preferably through consensus, a rate which some would benefit from, and others could strive towards — in other words, a symmetrical tariff. All networks should charge each other the same terminating rate. It’s a compromise, but a fair one that promotes efficiency.

    Where is the consumer in all this? Probably nowhere, since interconnect rates only affect the tariffs between networks, and not tariffs on the same network. So a Vodacom customer calling an MTN customer could benefit, but when he or she calls another Vodacom customer the tariff should stay the same, or will it? Logically yes, but commercially no.

    Why? Because network operators prefer to offer their own customers lower tariffs when calls are made from one customer on their own network to another customer on their own network (on-net calls), since they don’t have to give any money away through interconnect to another network. However, if you drop interconnect rates, should that be the case, tariffs between networks should drop, and in order for network operators to continue to promote on-net calls, these should also drop, maybe by not as much, but nevertheless they should drop.

    And the result? Well, Telkom could become deliriously happy, Vodacom, MTN and Cell C will get over it, new operators will have lower operating costs (and lower revenues), and the consumer may well get a break in lower tariffs.

    How much of a break? Maybe as much as 25%.

    And life will go on.

    • Knott-Craig is former CEO of Vodacom Group
    Follow TechCentral on Google News Add TechCentral as your preferred source on Google


    Alan Knott-Craig Cell C Icasa MTN Telkom Vodacom
    WhatsApp YouTube
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email Copy Link
    Previous ArticleiPhone 3G vs 3G S speed test
    Next Article Telkom strikers demand to see CEO September

    Related Posts

    Why Telkom is pouring capex into IT - Serame Taukobong

    Why Telkom is pouring capital spending into IT

    2 June 2026
    Telkom's data growth story still has years to run: CEO

    Telkom’s data growth story still has years to run: CEO

    2 June 2026
    Telkom's four-year SIU standoff awaits a final ruling

    Telkom’s four-year SIU standoff awaits a final ruling

    2 June 2026
    Company News
    Finding the next Sandton - AfriGIS

    Finding the next Sandton

    3 June 2026
    How telematics keeps fleets safe, efficient and compliant - Tracker

    How telematics keeps fleets safe, efficient and compliant

    3 June 2026
    Data centre summit returns to Sandton this June

    Data centre summit returns to Sandton this June

    3 June 2026
    Opinion

    Clashing judgments leave South Africa’s crypto law unsettled

    2 June 2026
    The trap inside South Africa's banking MVNO boom - Pambos Soteriades

    The trap inside South Africa’s banking MVNO boom

    1 June 2026
    The hidden cost of social media age bans is everyone's privacy - Petrus Potgieter

    The hidden cost of social media age bans is everyone’s privacy

    29 May 2026

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Latest Posts
    Meta takes on OpenAI and Anthropic in enterprise AI

    Meta takes on OpenAI and Anthropic in enterprise AI

    4 June 2026
    AI demand sparks 'chipflation' warning

    AI demand sparks ‘chipflation’ warning

    4 June 2026
    Amazon Prime launched in South Africa

    Amazon Prime launched in South Africa

    3 June 2026
    Amazon's long game in South Africa

    Amazon’s long game in South Africa

    3 June 2026
    © 2009 - 2026 NewsCentral Media
    • Cookie policy (ZA)
    • TechCentral – privacy and Popia

    Type above and press Enter to search. Press Esc to cancel.

    Manage consent

    TechCentral uses cookies to enhance its offerings. Consenting to these technologies allows us to serve you better. Not consenting or withdrawing consent may adversely affect certain features and functions of the website.

    Functional Always active
    The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
    Preferences
    The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
    Statistics
    The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
    Marketing
    The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
    • Manage options
    • Manage services
    • Manage {vendor_count} vendors
    • Read more about these purposes
    View preferences
    • {title}
    • {title}
    • {title}