Looking for stability, not favours
Confusion about cell connection fees obscures the real objections
THERE is a fair amount of noise and confusion on the issue of mobile connection fees, known in the industry as mobile termination rates.
Vodacom supports lower mobile termination rates. The only caveat is that the correct process must be followed. Indeed, Vodacom has proposed an immediate interim cut to provide breathing space to deal with the issues that are holding things up.
We support Communications Minister Yunus Carrim in his drive to reduce the cost of communicating. Over the past year we have reduced our average effective price per minute by 22%. Prepaid has declined even further: 25% in the past year and 50% over the past three years.
These reductions were achieved against a backdrop of rapidly escalating input prices in electricity, fuel and imported equipment. This means we have a price reduction and a cost squeeze to manage simultaneously.
These significant reductions in price are only possible thanks to a massive investment programme.
By investing in extra capacity, we are able to offset lower prices with higher volumes. The mobile termination rate issue is critical because it has the potential to impact investment, which in turn, could undermine the process of lowering the cost to communicate.
The international norm is that the mobile termination fee should be based on how much it costs the receiving network to carry this call — costs that come down with advances in technology and the benefit of increased economies of scale. To determine the current number, international regulatory best practice is to use a detailed cost study. This is also required by South African law. Vodacom believes it is being reasonable in expecting that the regulator respects this process.
But we know that this has not happened because we have not been asked to provide the kind of detailed information necessary to complete this kind of study.
To add to this problem, Icasa has imposed an unprecedented level of asymmetry on us. This means that by 2016 we will have to pay four times more to connect a call to smaller networks than they will pay to connect to Vodacom.
The telecommunications business is highly capital intensive, and the lack of investment by the smaller operators is the genesis of their current commercial position.
We are being asked to correct this by paying a subsidy of 30c a minute.
But this subsidy does not deal with the essence of the problem — their lack of investment.
By contrast, since our inception 20 years ago, Vodacom has spent more than R70-billion building its network in South Africa. This is a huge number, but the frightening thing is that the game has just changed and it is not nearly enough.
There are currently 18.2-million people using data on the Vodacom network. Smart phones alone consume 22 petabytes of data a year via our network. Add in all the tablets, laptops and dongle modems and Vodacom is on course to carry close to 50 petabytes of data on an annual basis. To put that into perspective, in just one year we will carry more data than we carried in total in the first 18 years of our existence. That is the equivalent of more than 15 000 years of high-definition video viewing.
But this is just the beginning. Our data volumes in South Africa are growing at more than 75% a year. At current growth rates, in just over four years our data traffic will be 10 times today’s level.
The data revolution is here, and the country’s mobile infrastructure is not capable of handling this kind of demand.
We need a material step change in investment to keep up.
To be able to carry 10 times the data traffic, we need massive investment. We have allocated an additional R2-billion in investment for the coming financial year, increasing to R9-billion a year.
How is it possible for us to ramp- up investment in a deflationary price environment and an inflationary cost environment? The answer is elasticity. As long as declines in prices are offset by increased usage, then the model works and we have a fighting chance. The crucial thing is that we must have the capacity to be able to do this — and that comes only with investment.
We want to lower the cost of communicating. All we ask for is a predictable regulatory regime that follows correct processes.
Icasa has a critical role but regulations alone will not help South Africa deal with the tidal wave of data demand bearing down on it. Neither will spending millions on open letters and negative adverts. This just gives the whole industry a bad name. Investment is the only thing that will achieve that goal, and stability is the fundamental basis for this investment. We want South Africa to not just match other nations’ communications infrastructure: this nation deserves to be a leader. In partnership with Icasa we can make this happen.