Nhleko warns against drastic intervention on interconnect - TechCentral

Nhleko warns against drastic intervention on interconnect

mobile-phoneIndustry regulator, the Independent Communications Authority of SA, needs to be cautious in how it manages mobile interconnect rates to ensure that local telecommunications operators continue to invest billions of rand every year in new infrastructure.

That’s the view of MTN Group president and CEO Phuthuma Nhleko, who says it is “simplistic” to compare interconnect rates in SA with those in other countries. Interconnect rates, also known as termination rates, are the fees the mobile operators charge other telecoms providers to route calls over their networks. Political pressure is mounting for the rates to come down — they are set at R1,25/minute during peak calling times.

“People tend to look at the tariffs in country A and compare them with the tariffs in country B and ask why there’s a difference,” Nhleko says. “But there are many elements and factors that go into it.

“For instance, most of our capital expenditure is in dollars so the value of the rand has an impact. Also, the cost of your network varies depending on if you are in a country with a large population and very high population density or covering wider areas with a sparser population,” he says.

“People forget that SA has a telephone penetration of 103%,” Nhleko adds. “That’s happened because the operators have been prepared to invest billions of rand every year to roll out their networks. If you look at other emerging markets, not many have achieved penetration rate of 103%.

“Part of the reason we could get that penetration was because the tariff is well balanced for what it is costing us.”

Nhleko says it is unfair to compare termination rates in SA with those of Namibia. The Namibian telecoms regulator recently forced down termination rates to $N0,60/minute from $1,06, with plans to reduce them to $0,30 within 18 months.

“To compare the Namibian configuration with the SA configuration doesn’t work,” Nhleko says. “You have a high concentration of people in Windhoek, and a high concentration of people in Walvis Bay and Swakopmund. You have a completely different set of parameters at play, which talks to my point about the simplicity of the arguments. We need a proper engagement here.”

When asked whether he thinks termination rates should come down and, if so, to what level, all Nhleko will say is: “I don’t want to commit myself to anything. We need to do these things in a way that ensures the sector continues to make huge investments in the country but that also gives government and the regulator comfort that it’s an equitable arrangement.”  — Duncan McLeod, TechCentral

4 Comments

  1. Waffle waffle rubbish lies.

    Or rather, in 1999, interconnect between Vodacom and MTN was 20c. In 2001, it was R1.23. The regulator was informed by means of a joint filing by both MTN and Vodacom. What happened between 1999 and 2001? What changed so dramatically? Let’s think. The rand? Nope, didn’t collapse against the dollar. Population density? Nope, it increased somewhat. Network investment? Nope, it was pretty steady. What then could it be that made such a sudden six-fold increase in the interconnect rate necessary? Could it be the licencing of Cell C? Surely not. Surely MTN and Vodacom aren’t both liars who colluded to force the new competitor out of the market?

  2. As an MTN shareholder I am disappointed (to say the least) that MTN is refusing to admit that “inter-connect fees” are ridiculously high in South Africa. My only consolation is that Vodacom is being just as obtuse.

  3. Clear Thought on

    Does anybody take this guy seriously? What a biased perspective. However, it is true to say that the telcos need to earn a return on their capital. However, they can do that by raising prices, but in a manner than doesn’t stifle competition by shafting new players. Then, allow stronger competition to give consumers a better deal.

  4. William Stucke on

    This is wrong in so many places – where do I start?
    “For instance, most of our capital expenditure is in dollars so the value of the rand has an impact.” The Rand has appreciated from R10/$1 to R8/$1 this year. Your point is?

    “Also, the cost of your network varies depending on if you are in a country with a large population and very high population density or covering wider areas with a sparser population,” Sure, and SA has a 25% higher population density than the USA, for example. SA has a population density of 39/km2, Namibia has 2.5/km2. Your point is?

    The capital cost per GSM user is $300, and per fixed line user it’s $1000. No arguments about how much it costs to roll out a GSM network as justification for high prices hold water.

    “You have a high concentration of people in Windhoek, and a high concentration of people in Walvis Bay and Swakopmund.” And we don’t have a high concentration of people in Johannesburg, Cape Town and Pretoria?

    Ivo has correctly pointed out why we have high interconnection rates. The reality is that if they were dropped substantially, Telkom and Cell C would pay MTN less, and MTN would pay Vodacom less.

    If ICASA were to mandate a reduction in interconnect rates to R0.25/minute peak+VAT, whether immediately or phased over time, I wouldn’t expect an immediate drop in prices from MTN and Vodacom. However, I would expect the smaller, more agile, companies to be able to offer competitive options, which at present is impossible. They would gain market share, which with time will force down prices for all.

    MTN and Vodacom shareholders would get a lower dividend. Shame.