Tonic for Telkom and con­sumers

Lower call con­nec­tion costs if Icasa gets its way

Finweek English Edition - - Communication & technology - BELINDA AN­DER­SON

TELKOM STANDS TO BEN­E­FIT from reg­u­la­tor Icasa im­pos­ing a cost-based in­ter­con­nec­tion regime on the tele­coms in­dus­try. But con­sumers should also ben­e­fit, as should smaller op­er­a­tors such as Cell C, and Voice over In­ter­net Pro­to­col (VoIP) ser­vice providers want­ing to in­ter­con­nect with the ma­jor op­er­a­tors.

Th­ese are the views of var­i­ous in­dus­try com­men­ta­tors on the out­come of a re­view by Icasa into the whole­sale cost of ter­mi­nat­ing calls on the net­works of the tele­coms op­er­a­tors – fixed and mo­bile. In­ter­con­nect refers to the cost of trans­fer­ring a call from one net­work to an­other, a cost – as in other parts of the world – the caller bears.

In South Africa, Telkom pays the mo­bile op­er­a­tors roughly four times what they pay it to ter­mi­nate calls on each other’s net­works; 125c against 31c (plus VAT). This was de­signed to give the mo­bile in­dus­try a leg up when it was thought sub­scriber num­bers would only reach 500 000 in 10 years. But the gap hasn’t closed.

In­ter­con­nect rates have, un­til now, been set by the in­dus­try, and filed with Icasa for the sake of trans­parency. Be­tween May 1999 and Oc­to­ber 2001, mo­bile ter­mi­na­tion rates rose 515% from 20c to R1,23, and are now R1,25, ac­cord­ing to Icasa. Fixed-line ter­mi­na­tion rates in­creased by 47%, from 21c to 31c, be­tween De­cem­ber 2001 and Jan­uary 2005.

The reg­u­la­tor now pro­poses im­pos­ing price con­trols on the big op­er­a­tors based on the ac­tual cost of mak­ing the con­nec­tion.

Cell C said lower cost of in­ter­con­nec­tion with the dom­i­nant play­ers would en­able it, as a late en­trant, to com­pete ef­fec­tively, “some­thing it was de­nied on li­cens­ing”.

Telkom would ben­e­fit be­cause it would pay lower in­ter­con­nect costs to the mo­bile op­er­a­tors, though this would bal­ance out to some ex­tent given that it’s a 50% share­holder in Vo­da­com (which would in turn re­ceive lower in­ter­con­nect fees). In the six months to Septem­ber last year, Telkom paid over R3bn in in­ter­con­nect fees to other op­er­a­tors, while it re­ceived just R781m in fees from them. Vo­da­com earned R3,7bn in in­ter­con­nect fees and paid out R2,7bn (net in­ter­con­nect rev­enue was just over R1bn).

The re­cent run in Telkom’s share price – up from R148 in late Jan­uary to R161,50 in early Fe­bru­ary – might in part be at­trib­ut­able to the re­al­i­sa­tion that it could ben­e­fit. But it might also be be­cause some in­vestors be­lieve the mar­ket has been un­der­valu­ing the com­pany.

Key to the out­come of the process will be the re­ac­tion of the op­er­a­tors, says Africa Anal­y­sis tele­coms an­a­lyst Dobek Pater.

World Wide Worx man­ag­ing di­rec­tor Arthur Gold­stuck says the high cost of mo­bile in­ter­con­nect is tes­ta­ment to how pow­er­ful the net­works are as a lobby group. Th­ese prices ex­ist “be­cause the net­works have been al­lowed to get away with it for so long”. Gold­stuck says in­ter­con­nect is one of the big­gest por­tions of the cost of a cel­lu­lar call, “and one of the eas­i­est to rec­tify”.

De­spite mo­bile op­er­a­tors pay­ing Telkom far less to in­ter­con­nect with its net­work than they pay other mo­bile net­works, they gen­er­ally charge sub­scribers a flat “off-net” rate, which means they rake in su­per prof­its ev­ery time a fixed line is called from a mo­bile phone.

The net­works and other in­dus­try play­ers have un­til end-March to com­ment on Icasa’s re­port and can par­tic­i­pate in oral hear­ings. The re­view is part of a process un­der the new Elec­tronic Com­mu­ni­ca­tions Act whereby the reg­u­la­tor will de­fine spe­cific mar­kets to de­ter­mine how com­pet­i­tive they are and im­pose spe­cific pro-com­pet­i­tive reme­dies where nec­es­sary. In other words, it will step in and pre­vent big play­ers with sig­nif­i­cant mar­ket clout from abus­ing this power.

An over­haul of the in­ter­con­nec­tion regime is seen as a key part of mak­ing the SA mar­ket more com­pet­i­tive.

But, it won’t be the panacea to change the over­all cost of the cel­lu­lar in­dus­try, says Nashua Mo­bile CEO Mark Tay­lor. He says in­ter­con­nect costs are one fac­tor among many.

Tay­lor says if in­ter­con­nect costs come down by 15% to 20%, he’d ex­pect all the net­works to drop their tar­iffs by a sim­i­lar mar­gin. His con­cern, how­ever, is that if Icasa forces rates down too much, this could dis­cour­age fur­ther in­vest­ment by the mo­bile net­works and the coun­try won’t re­main at the fore­front of tech­nol­ogy.

Gold­stuck says if the net­works are trans­par­ent about their true costs in the process of sup­ply­ing this in­for­ma­tion to Icasa, the big­gest ben­e­fi­ciary will be the con­sumer.

Pater, how­ever, says any gains that could be passed down to con­sumers are the­o­ret­i­cal be­cause in­ter­con­nect pay­ments are made be­tween op­er­a­tors in a ra­tio that’s de­ter­mined by traf­fic. He be­lieves the way for op­er­a­tors to pass on ben­e­fits to the con­sumer is rather to ob­tain greater ef­fi­cien­cies in their net­works.

Op­er­a­tor re­ac­tion is key. Dobek Pater

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