What if cell tariffs don't drop? - TechCentral

What if cell tariffs don’t drop?

Duncan McLeod

[By Duncan McLeod] Cellular operators were set to receive a grilling in parliament this week. Politicians want mobile interconnection fees to come down. But it’s far from clear if the basic cost of calls will also fall. Can politicians avoid the temptation of interfering further?

Parliament’s portfolio committee on communications has called SA’s mobile operators, Vodacom, Cell C and MTN, to account for high interconnection fees — the fees they charge each other and other operators to carry calls on their networks.

There’s hope that lower interconnection fees will translate into lower call prices for consumers. But this is far from guaranteed.

Look at Namibia. It recently cut mobile interconnection fees by nearly half and plans to reduce them by half again in the next 18 months. Yet MTC, Namibia’s largest mobile network operator, has left its retail rate — or the basic cost of a call — unchanged.

Yes, SA’s mobile interconnection fees are too high. MTN and Vodacom forced them up just before Cell C entered the market in an apparent attempt to cripple the new entrant before it could get off the ground. They now use them as a crude anticompetitive club to keep new competitors out of the market.

But reducing them too quickly could lead to unintended consequences, not least of these being a shift in focus by the operators away from low-end, prepaid consumers, who could become unprofitable to serve.

Most people will agree that something had to be done. The Independent Communications Authority of SA (Icasa) has taken far too long to deal with the issue. And though the department of communications, under new director-general Mamodupi Mohlala, is making the right noises, there is also reason to be concerned that government could become too aggressive in trying to deal with high prices.

The danger is this: if interconnection rates are reduced and there is no commensurate reduction in retail rates, politicians may feel the need to try to force down retail rates. But regulating tariffs is a complex matter and is a job that really ought to be left in the hands of the independent regulator, not managed by politicians eager to please voters.

SA has high prices — especially in broadband services — precisely because of strategic missteps in telecommunications policy over the past 15 years. Both the Mandela and Mbeki administrations were too slow to liberalise the market, leading to the creation of dominant operators that have been able to maintain high profit margins because of a lack of real competition.

However, the remedies the state introduces could do even more long-term damage. Operators will be reluctant to invest if they’re worried government could intervene in their businesses at any time.

Already, Mohlala has mooted the introduction of a “tariff advisory council” to ensure government and consumers are involved any time operators want to increase their prices.

But this is a function that is already handled by Icasa. If the authority is not doing its job, why not fix it instead of introducing another layer of bureaucracy?

As a basic rule, regulating prices, especially retail tariffs, is a bad idea. What government and Icasa ought to be doing is finding ways of stimulating as much competition in SA telecoms as possible. Other forms of regulation — examples include enforced unbundling of Telkom’s local loop and smart allocation of radio frequency spectrum to new market entrants — can play an important role.

Yes, mobile interconnection fees must be regulated (at least until the market is more competitive). And, yes, they must come down so they more accurately reflect the cost to operators of carrying calls between their networks. But politicians must resist the temptation to regulate retail tariffs. Leave that to the markets.

  • This column is also published in the Financial Mail

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5 Comments

  1. I know interconnect fees are not our networks only or primary source of revenue, but I am sure forcefully reducing it definitely will have a negative impact on their earnings.

    As many companies do these days, maybe our networks then will look at curbing unnecesary spending. Maybe sponsorhips will be the first to go, i mean whilst it is an effective means of advertising, surely the return on investment cant be that great? I mean really, who needs big ol’ MTN to sponsor R500 million for some silly “world cup”?
    Who needs to Vodacom to sponsor Rugby, Soccer, some horses running around a track in Durbs every July? Really, who needs all that??
    Or how about not investing in infrastructure(have a look at our networks coverage maps on their websites)?
    Or maye our networks should cut investment into the EASSy project?

    Anyway, I would probably have to go back to school and get some sort of financial degree before i would even be qualified to make an intelligent comment about the core issue here.

    My main gripe is that I just think this creates negative feeling towards our networks in the public eye and people tend to forget everything else our networks do for us. I know this does not give them the right to shaft us but comon, theres 2 sides to every story here.

  2. They should include the interconnect rate to “087 numbers” in the debate. Dont phone an 087 number from your landline or mobile, unless you have more cash than brains…………these may have been the “old sex line’s” number range but in my opinion they still are…..just look at your bill at the end of the month and you will notice how “you still get screwed” when you call them……..

  3. @Mel: 5 calls a day, 30 days a month, 20c reduction. That’s a R30 saving per month or R360 a year. Or if we’re hyper conservative and we says there are a million cellphones users that’s R360 million a year.

    Much as I appreciate the sponsorship of sports that I don’t watch and I’m sure the sportsman do also. I think as someone who pays hard earned cash I’d rather be in control of how that money was spent. Unless you see this as simply a tax that we trust these companies to spend for our benefit?

    Of that 20c I’m doubtful all of it goes into the things you dream about.

    Yes there are two sides of the story but it seems that one side is mostly discussed behind closed doors and one side just happened to raise the rates just before Cell C arrived. When we actually hear anything from the one side it would be great.

  4. You raise some valid points DwayneB, and really, i do see your point. At least we can rest assured(hopefully) that our networks have reinvested enough funds into infrastructure to prevent an Eskom type situation(150% increase planned over the next 3 yrs). I read somewhere recently that MTN spent like 10 billion upgrading their network over the last 2 years.

  5. Mel – dont kid yourself.

    MTN & Vodacom are printing money in SA. They are just like telkom, its just another tax. We have some of the highest telecoms rates in the world. Why? Well because govt only allowed 2-3 entrants which has allowed Vodacom & MTN to build their network AND still make ridiculous profits. Vodacom & MTN were allowed to bully Cell C.

    Vodacom & MTN will still have more than enough cash and still make ridiculous profits even with the interconnect rate coming down.

    They also dont actually pay out much in the way of real cash anyway, if the call traffic from Vodacom to MTN is equal they effectively pay each other zero, this means they pocket the full call price. The ones that actually lose out are Telkom (everyone calling mobiles from landlines) – interconnect rate is a red herring, they just use it to bully the competition and keep prices artificially high to consumers.

    Why should the talks with Vodacom, MTN & Cell C be closed with Parliament? Thats utter nonsense. This is a public interest, it affects all of us, if its public, why shouldnt it be held in public!