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Icasa wants service providers to lower their termination rates by as much as 75% by 2016

The proposal of an aggressive cut in the mobile termination rate (MTR) by telecoms regulator Icasa may force mobile operators to alter their current pricing models.

But the proposal has also elicited concerns regarding future employment and investment in the telecoms sector.

Icasa’s shock draft proposal called for a 75% slash in the MTR by March 2016. Currently, the amount operators charge each other for terminating calls on their network is 40c and this may be reduced by half to 20c on March 1 2014, to 15c a year later, and to 10c on March 1 2016.

Gregory Cort, an analyst at equity specialist company ELECTUS, said the most immediate concern for operators would be the possible cutting of rates by half next year and the level of asymmetry to be introduced.

If the proposal goes through as it is, the maximum Vodacom and MTN would be able to charge Telkom Mobile and Cell?C, for instance, for terminating a call on their network is 20c, while Telkom Mobile and Cell?C would be able to charge bigger operators 39c.

According to MTN SA’s chief executive, Zunaid Bulbulia, the proposal would bring MTN’s mobile call termination prices below fixed network prices, something that “has never been seen anywhere before”.

He said: “The proposal is also to tax MTN’s subscribers by forcing them to pay artificially high wholesale prices (close to 100% higher, in fact) to smaller competitors in order to secure their business success and fund their marketing promotions for the next five years,” he said.

But the rate cuts could also affect network investment, particularly at a time when data usage is skyrocketing.

Since March 2011, when Icasa introduced mobile termination rate cuts, Vodacom has lost close to R1.5?billion because of the net effect on pretax profits of the drop on call termination rates, according to Vodacom spokesperson Richard Boorman.

He said if the business was not able to absorb the MTR cuts in one hit, there could be a knock-on effect on things such as investment and employment.

“The headlines about threatening job cuts were rather stretched – the employment impact could, for example, be on hiring or at suppliers to Vodacom,” he said.

But the new proposal bodes well for ailing fixed-line operator Telkom and its mobile arm, which has struggled to gain a substantial market share since

it launched in October 2009. According to its March 2013 financial year-end results, Telkom paid R2.8?billion to mobile operators for interconnect fees.

Consumers have already expressed their unhappiness with the high cost of connection through protests and various appeals to Icasa. But while

voice prices may be reduced, data costs may increase.

Cort said: “For many operators, voice is subsidising data and they need to work on getting the pricing model right. Many operators overcharge on voice and undercharge on data. So in the future, they may have to adjust their prices and increase the price of data while the price of voice comes down.”

In an ELECTUS strategy note released in August, Cort estimated that Vodacom was charging nine times the data equivalent on voice.

Cell?C chief executive Alan Knott-Craig, who is not content with disrupting the mobile industry with a price war and lobbying the regulator for asymmetrical rates in interconnect fees, has also lodged a complaint with the competition commission against MTN and Vodacom.

The crux of Cell?C’s complaint is that MTN and Vodacom should not be allowed to charge their customers differently, whether the customers call to a different network or to the same network. Operators usually provide discounts when customers make calls on the same network.

Knott-Craig says this constitutes discriminatory pricing from the dominant operators.

But according to Boorman, this is standard practice globally.

He said: “Cell?C is apparently arguing for an increase in the price that Vodacom customers pay to call other Vodacom customers. It’s hard to argue that increasing prices would be a benefit to consumers.”

Bulbulia said Cell?C’s complaint was “spurious”, but MTN would cooperate with the competition commission and argue its case.

Cort said: “It seems ironic that giving customers a discount is considered anticompetitive and bad for the consumer, but it is, basically because of the network effect and having a larger user base keeps the smaller players out.

“It’s already in place in many European countries and recently Nigeria went that way too.”

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