The bigger they are, the harder they fall. Severe cuts in interconnect rates – the fees telecoms operators pay to connect calls between networks – are imminent. It’s bad news for the big guys and party time for the underdogs.
It’s been a long time coming, but few were prepared for how hard it would hit. The rate telecoms operators pay for connecting calls between networks – the ‘ interconnect’ rate – is set to tumble following the next steps in the South African Independent Communications Authority’s (ICASA) effort to stimulate competition in the local market. With the full support of Government, ICASA has slashed rates. The change will severely impact on revenues for market leaders Vodacom and MTN but is fantastic news for underdogs Cell C and Telkom Mobile.
From the beginning of March 2014, the fee that mobile phone operators pay each other to terminate calls on each other’s network will decrease from 40c per minute to 20 per minute, and ICASA has promised further reductions to come as part of its plan.
Credit rating agency Moody’s said that the impact on market leaders would be substantial. With the biggest share of the South African market, Vodacom will be hardest hit. MTN is second in the line of fire, but South Africa accounts for less of its [MTN’s] revenues given the group’s substantial African footprint.
Minister of Communications Yunus Carrim said that he welcomes the move.
“They [ICASA] serve the country’s interests. We would like to see these new rates contribute to consumers and business paying less to communicate and benefitting economic growth and job creation over time. The high costs to communicate have deterred global and domestic investment in this country.”
Of course, the interconnect rate was originally a ploy to sabotage competitors in the local market, architected by MTN and Vodacom. It was a hedge against new entrants such as Cell C – and it worked.
More than a decade later, things are finally changing.
“These rates provide for greater competition which we expect to lead to reductions in the cost to communicate,” said Carrim.
“We understand that ICASA consulted extensively with all the parties and we feel that they should accept the outcomes. What some of them may lose in immediate profits will be exceeded by what they will gain in the medium and long term.”
Recently, ICASA also introduced penalties for telecommunications operators that fail to resolve issues surrounding bad service. The authority said that complaints from customers that are not timeously resolved would result in fines for operators.
The rate reduction didn’t come without a fight but is now being welcomed by the market leaders in their endeavours to convince consumers that their best interests are foremost.