The cost of communicating using contract subscriptions on all three of SA’s mobile operators has risen, not fallen, despite the substantial reduction in wholesale mobile termination rates on 1 March, two industry executives have claimed.
Howard Sackstein, CEO of telecommunications company Saicom, who has analysed a large range of packages — both postpaid and prepaid — offered by Vodacom, MTN and Cell C, says individual tariffs have risen by as much as 70%.
The analysis, if correct, is likely to pile the pressure on mobile operators to reduce their retail tariffs in line with reductions in call termination rates.
Graeme Victor, CEO of Du Pont Telecom, appears to back up Sackstein’s claims. Speaking separately to TechCentral, Victor says Vodacom’s tariffs have risen an average of 9% for a three-minute call in the past few months.
But Vodacom SA MD Shameel Joosub has rubbished the claims, saying both men have failed to take into account the additional free minutes Vodacom is offering its contract subscribers.
The mobile operators agreed to a voluntary cut in mobile termination rates — these are the interconnection fees they charge one another to carry calls on their networks — on 1 March. The rate during peak calling times (weekdays from 6am to 8pm) fell from R1,25/minute to 89c/minute.
But Sackstein says contract fees have been hiked, constituting what regulators call the “waterbed effect”, where, in an insufficiently competitive market, operators raise prices in some areas to offset regulated reductions in other areas.
SA operators have warned that March’s reduction in termination rates have already cost them hundreds of millions of rand in lost profit. Vodacom spokesman Richard Boorman says the effective cost per minute of a call carried on its network has fallen by 8% over the past year.
If the separate studies done by Sackstein and Victor are, in fact, correct, the operators may be managing to recoup at least some of the losses they’ve incurred from the reduction in termination rates by hiking call costs for postpaid users and reducing “connection incentive bonuses” (CIBs).
CIBs include discounted handsets and even free TVs and microwaves that the operators use to lure customers into signing contracts, usually for two years.
Victor has analysed Vodacom’s recent rates adjustments, which came into effect on 1 May, and concluded that, contrary to the operator’s claims, it has hiked its tariffs — but hidden these from easy view.
Sackstein says the move by the Independent Communications Authority of SA (Icasa) to force down mobile termination rates is meant, ultimately, to flow through to lower retail rates for consumers.
But the opposite is happening in the postpaid market, he contends.
Methodology
In reaching his conclusions, Sackstein has taken into account that the reduction in termination rates in March was only for peak-time calls and for calls made to other networks.
He has assumed a traffic split between Vodacom, MTN and Cell C of 50%, 40% and 10%, and also assumed that 30% of all calls are made during off-peak periods.
Based on this, he reckons the cost of calls on Vodacom postpaid packages should have fallen by an average of 10,1%. On MTN, they should have come down an average of 12,1%, and on Cell C by 18,1%. They haven’t, he says.
On Vodacom’s Corporate 500 contract, the price of peak, in-bundle, off-net calls fell by 15%. However, off-peak, in-bundle, on-network call charges have shot up by 70%, Sackstein says.
Despite the reduction in peak-time call rates, he calculates the overall cost of calls on the Corporate 500 package contract has risen by more than 14%.
On other packages, both Vodacom and MTN have reduced the CIB, sometimes by a substantial amount; meaning consumers won’t get phones that are as snazzy as they may have before without having to pay extra.
Calls may sometimes be cheaper than previously, but consumers are getting less value over the lifetime of the contract, Sackstein says.
He points to MTN’s MyChoice 705 contract, where he says the CIB has been slashed by R800, to R1 200.
And, he says, Cell C has used similar tactics to counteract the negative impact of lower termination rates on its bottom line.
Prepaid rates
Even in prepaid, Sackstein says none of the operators has passed on the full benefits of lower rates.
Vodacom’s prepaid rates have come down 4,5% — “nowhere near the 10% you’d expect”.
And MTN’s prepaid tariffs have fallen 5,9%, not nearly as much as the 12% one might have expected, he says.
“If you compare the rates now, and what they were before 1 March, in some cases consumers are much worse off,” Sackstein says. “Where they are better off, they’re nowhere nearly as better off as they should be.”
But Vodacom’s Joosub tells TechCentral that Sackstein’s findings are “nonsense” and “not factual”. He says Vodacom experienced a drop in its revenues the moment the new rates came into effect in May. “There is an effective price decrease.”
And, he says, Sackstein has ignored the free minutes Vodacom has begun offering most of its contract subscribers after hours and at weekends “because it doesn’t suit his purposes”. “He’s taking into account all the discounts and CIBs. The customer doesn’t see all those things.”
Joosub says Vodacom has had to take costs out wherever it can. For example, it has reduced the commission it pays to partners who recharge prepaid vouchers by 2%. And it’s made “prudent cuts” elsewhere to offset the reduction in termination rates, which Joosub says have already cost it R600m on the bottom line. — Duncan McLeod, TechCentral
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