Bell tolls

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.

Finweek English Edition - - TECHNOLOGY - Si­mon Din­gle

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.

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