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Profit from the poor2007-05-24 At hearings last week, Vodacom and MTN argued that the high tariffs they charge one another to terminate calls on each other’s networks are good for the poor. The truth is that the high fees benefit no-one other than SA’s two dominant cellular operators. The Independent Communications Authority of SA (Icasa), which regulates SA’s telecommunications industry, is engaged in its most important process in years: drawing up regulations that will determine the wholesale termination rates that mobile operators charge each other to carry voice traffic between their networks. Until now, the rate has been agreed on commercial terms between the operators. It is set at R1,25/minute (excluding Vat), one of the highest in Africa — in Nigeria, for instance, it’s set at just 59c/minute. The high termination rates keep the cost of mobile telephony artificially high. For Icasa, the process is a time-consuming one. It is administratively burdensome and fraught with legal risks. In terms of the Electronic Communications Act, the legislation that governs the sector, Icasa first has to find the presence of dominance, or “significant market power”, before it can intervene. It has to determine whether competition is insufficient, or simply not working. Icasa councillor Tracy Cohen says the authority’s work can be taken on review only on the basis of procedural errors, which means it has to proceed with extreme care. MTN’s written submission to Icasa suggests the cellphone company may take it to court no matter what happens. The hostile response by MTN is not surprising. Between them, MTN and Vodacom stand to lose billions of rand in interconnection revenues. MTN is the biggest beneficiary of the current regime and potentially the biggest loser if fees are reduced. But the argument Vodacom and MTN have made, that a lowering of termination fees would harm the poor, is built on very shaky foundations. MTN regulatory affairs executive Nkateko Nyoka, who, ironically, is a former Icasa CEO, has long argued that the high penetration of cellphones in SA is due to the high call settlement fees between operators. He has argued before that the only people who would benefit from lower termination fees are those who are already connected. Vodacom presented a similar argument at last week’s hearings, threatening to axe from its network low-spending consumers who don’t make many calls. These customers would be much less profitable as calls they received would attract less interconnection revenue if termination fees were slashed, Vodacom says. What the operators fail to point out is that it is the poor, not the wealthy, who tend to make phone calls to the poor. So high termination rates keep retail prices high not only for the well-to-do, but also for those who struggle to afford to use their cellphones. In a properly competitive market, which SA’s cellphone industry is not, commercially agreed termination rates would fall naturally. But a lack of competition — specifically, dominance by two operators — has seen termination rates rise by 525% since 1994. And in a market where there isn’t sufficient competition, regulation, though never desirable, is necessary. More contentious is the proposal put forward by Cell C that Icasa impose asymmetrical termination rates that favour smaller operators. Cell C argues that the dominant operators can use wholesale termination as a weapon to keep smaller operators out of the market. Icasa will need all the energy it can muster to tackle Vodacom and MTN, whose well-resourced legal departments appear to be itching for a fight. The authority must know that it has consumers on its side. Source: My Broadband |
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