Lower Interconnect Fees

Lower interconnect rates are a contentious issues, here is a list of who is for and who´s against it

High interconnect rates have long been fingered as one of the major reasons for the high call rates in South Africa. “South African telecommunications prices, fixed and mobile, remain among the highest in the world. Excessive interconnection rates are at the root of high prices,” said John Holdsworth, CEO of ECN Telecoms.

“Whilst ICASA has released a further set of draft interconnection regulations, these regulations do not address the issue of interconnection rates and will therefore not have the effect of driving prices down.”

Market speculation suggests that the new Minister of Communication, Siphiwe Nyanda, also weighed in on the issue and is starting to put pressure on the larger operators to reduce wholesale termination rates.

Operators like Vox Telecom, iBurst and Cell C have long argued that lower interconnect rates will have a significant impact on lowering the cost of voice calls in South Africa, but so far Vodacom and MTN have stubbornly hung on to interconnect rates of up to R 1.25 per minute.

“In South Africa interconnection rates between fixed and mobile operators are not symmetrical. The Vodacom, MTN and Cell C interconnection rate during peak times is R1.25 which is more than 4 times the Telkom interconnection rate and in some cases the mobile operators´ fixed retail rates are up to 900% of the fixed interconnection rate,” said Holdsworth.

This scenario raises the question as to which of the larger operators are in favour of lower interconnect rates and which companies are against it.

For lower interconnect rates

Cell C, which has long complained that high interconnect rates are makes it difficult for new entrants to compete against more established operators, are strongly in favour of lower wholesale termination rates.

“MTN and Vodacom increased the interconnection rates by 500% when Cell C came to market and that essentially affected the retail price. As a consumer champion we support lower retail rates to consumers,” said Cell C.

“There are various ways to achieve that, with a reduction of the interconnection rate and the leveling of the playing field by regulating dominant players, being one of the options that has been successfully implemented in other countries. Therefore Cell C supports the reduction in interconnection rates as part of a broader process that will promote fair competition in the market and level the playing fields. ”

Neotel, which as a new entrant is trying to wrestle market share from Telkom, also supports lower interconnect rates. “Neotel supports any proposal to address interconnection rates in South Africa, particularly termination rates, where these costs have not been derived in accordance with, nor reflect, market realities,” said Neotel.

Not overly keen to lower prices

It is not surprising that that the three major telecoms operators in South Africa – Vodacom, MTN and Telkom – are not overly enthusiastic about reducing interconnect rates. These companies generate a large amount of revenue from incoming calls, and lower interconnect rates will translate into lower revenue and lower profits.

These companies however do openly admit that they would like to keep interconnect rates high, something which may be attributed to the current political environment where lower telecoms costs are on the agenda of the Zuma Government. Consumers may also not take kindly to companies who bluntly try to keep interconnect rates inflated.

While Telkom states that it “consistently supports initiatives aimed at improving telecommunications access and affordability in the country,” it does not seem particularly keen to achieve more affordable telecoms through lower interconnect rates.

“Interconnection is a complex matter and rates are determined uniquely per negotiation between operators. The considerations for negotiation depend, inter-alia, on the types of operators to be contracted eg. fixed-line to fixed-line, mobile to fixed-line, mobile to VoIP, mobile to mobile, etc,” Telkom said.

MTN´s Chief Corporate Service Officer, Zolisa Masiza, well known for his excellent knowledge of the telecoms regulatory environment, also argues that interconnect rates are a negotiation based system, and would not comment directly on reducing interconnect costs.

“The technical and financial feasibility of the request in terms of the Electronic Communications Act is a key consideration. Any interconnection agreement is negotiated between MTN and the proposed partner and every request for interconnection is considered on an individual basis, with designs being customised to a company´s requirements,” said Masiza.

“There are, however, minimum costs that need to be recovered and hence the need for a commitment on minimum traffic volumes and financial guarantees. To ensure some form of cost recovery, contractual minimum commitments are applied.”

Vodacom simply hid behind ICASA´s current investigation into call termination rates, saying that it “will support lower interconnect rates if this is the outcome of a considered evaluation in terms of existing mechanisms by ICASA”.

From the responses from MTN, Vodacom and Telkom it seems unlikely that the three largest operators in South Africa will reduce interconnect rates without Governmental or regulatory intervention. This may however take time, especially since there are regulatory hurdles in determining the cost of interconnect rates.