Davids versus Goliaths
Proposed carrier pre-select regulations will force MTN and Vodacom to enable smaller operators
LATER THIS MONTH the Independent Communications Authority (Icasa) will conduct hearings on the first major decision based on South Africa’s new Electronic Communications Act (ECA). The regulations being proposed by the regulatory authority will enable carrier pre-select (CPS) for SA’s telecommunications networks, including mobile operators Vodacom and MTN, forcing them to carry network traffic on behalf of smaller third parties.
Should Icasa decide to implement the rules, SA’s competitive telecommunications landscape will be substantially changed, enabling smaller, mobile virtual network operators (MVNOs) to directly compete with the likes of Vodacom and MTN.
One company that stands to benefit from the proposed rules is ECN, although it’s submitted representations on the proposed regulations it feels are inadequate. ECN says SA’s mobile market is in effect a duopoly. The company points out in its representation document that cellphone calls in SA are among the most expensive in the world and asserts that requiring phase 2 CPS from mobile operators will have a profound impact on the competitive environment.
“Carrier pre-select was originally designed for the fixedline market and introduced in Britain many years ago. But the landscape has shifted with the growth of mobile and so CPS must be positioned for both landline and mobile networks now,” says John Holdsworth, CEO of ECN. “In SA it would be pointless implementing it if not for mobile, because of the dominance of cellular telephony. It’s highly negative for the competitive environment if the incumbent operators are able to use their networks as a lever to prevent competition.
“MVNOs are simply unable to compete if they must build networks that match the scale and capacity of the incumbents. The only way to introduce competition and drive prices down is if CPS is properly introduced, enabling the MVNO market,” says Holdsworth.
Vodacom and MTN have also provided representations to the proposed legislation and will present their cases to Icasa at the hearings. Graham de Vries, MTN’s head of regulatory affairs, says: “There are very few instances of CPS being imposed on mobile operators in other jurisdictions internationally – and where that has happened it’s only been after market analysis has been conducted showing some or other structural market problem exists and that CPS regulation is the remedy.
“There’s no real sense of what the problem is in SA because no such market analysis has been conducted. We’re being confronted with a remedy to a problem that hasn’t been identified. There are also technical difficulties that would be experienced if CPS were to be implemented as proposed by Icasa. It would see the introduction of an inefficient routing structure leading to what we call the ‘tromboning effect’ – where traffic is sent out of mobile networks and then back in again with the introduction of a third party or middleman – while there are already perfectly good interconnections between mobile networks. That’s effectively against the ECA, which requires efficient usage of not just radio frequencies but also infrastructure.”
However, in principle De Vries says MTN would support any decision by Icasa backed with market analysis clearly identifying a problem and offering CPS regulations as the most efficient solution.
Vodacom echoes MTN’s view about the lack of analysis. “CPS has generally been imposed almost exclusively on incumbent monopoly fixed line operators. Vodacom doesn’t know of any examples worldwide where CPS has been imposed and implemented in competitive markets, such as is the case with mobile telephone networks and services in SA,” says Dot Field, chief communications officer at the Vodacom Group.
“Vodacom takes the view that an impact study should be conducted to determine whether the implementation of CPS would have any positive impact on competition in SA’s communications market. SA’s mobile networks and pricing models are distance agnostic. The country is treated as a single area for charging purposes, and applying CPS to national licensed operators – as suggested in Icasa’s draft CPS regulations – is problematic. The ECA framework introduces many structural and access remedies aimed at enhancing and increasing competition. The need for CPS is therefore less pressing at this time,” she says.
Icasa will make its position on CPS public after its hearings are concluded.
SA’s mobile market is a duopoly. John Holdsworth
Give us an impact study. Dot Field