State to force more telecoms cost cuts

2009-10-17 11:01

ONCE the government is done with slashing cellphone interconnection

rates, it will issue directives to cut the costs of broadband, international

calls and short message service (SMS), which are all high by global


Mamodupi Mohlala, the director-general of the communications

department, said this week that the government had set itself a deadline of

forcing down telecoms costs by the end of May next year.

“We have a programme of action that has specific timelines. We

expect by May next year to have given a policy directive on all the services.

This will include mobile interconnection, broadband, international calls, SMSes,

and retail tariffs,” Mohlala said.

Mohlala’s department commissioned research group BMI TechKnowledge

(BMIT) to analyse telecoms prices and their usage in five developing countries

such as South Africa, Malaysia, Chile, Brazil, and India.

What the study has found is that South Africa has relatively high

­mobile penetration, yet usage is very low due to expensive tariffs.

The government has already set the ball rolling on pushing for

cellphone companies to reduce their ­interconnection fees, the charge they

impose for transferring calls to others networks.

The mobile network operators charge interconnection rates at R1.25

a minute during peak hours.

The study found

that the interconnection rate in South Africa is nearly as high as that of

Brazil, which has the highest interconnection fee of the countries analysed by


In US dollar terms, the research discovered that Brazil’s

interconnection rate is 28.49c a minute compared with South Africa’s fee of

27.06c. India has the lowest interconnection charge at 1.97c, followed by

Malaysia’s 4.56c.

South Africa and Brazil were also found to have the highest SMS

costs. On average, South African cellphone users transmit about 28 SMSes a

person per month and spend US?18c on them, while Brazilian subscribers send 37

SMSes for US?25c.

While South Africa has the cheapest international calls from a

fixed line, the mobile international calls are a different story altogether. To

make a call to the US from a mobile phone, South Africans pay US?64c a minute,

while the Indians fork out 41c and the Brazilians 43c.

South Africa was found to have high broadband tariffs, but of all

the countries surveyed its broadband has the slowest speeds. Internet broadband

penetration is also low in South Africa. In other countries, like Qatar,

broadband access is provided free of charge.

This week, cellphone companies MTN, Vodacom, and Cell C the

country’s smallest operator, appeared before Parliament’s committee on

communications, which has called for the reduction in interconnection rate to

60c (South African) before the end of the year.

The committee further wants the interconnection rate to be slashed

by 15c a year over the next three years to a final rate of 15 cents.

Vodacom and MTN want the ­interconnection rate cuts to be phased in

gradually, while Cell C said it ­favoured an immediate reduction. It proposed

that the interconnection fee be slashed to 65c for it and 75c for both its

bigger rivals, Vodacom and MTN.

Cell C has been battling to cut its call tariffs drastically

because of the interconnection rates, which have kept cellphone costs


“Cell C can never reduce tariffs below R1.25 a minute because if

does so it will become uncompetitive,” said Khulekani Dlamini, a portfolio

manager at Afena Capital.

If the government directive to cut interconnection fees was

implemented, South African cellphone users could see their call costs coming

down provided the retail sellers of airtime pass on the savings to


Mohlala said the government would see to it that this


Now the ball is firmly in regulator Icasa’s court. The Independent

Communications Authority of SA (Icasa) has been instructed by Communications

Minister Siphiwe Nyanda to determine an interconnection fee that is not 50%

higher than cost by the end of next month.

Some believe that the cost of providing this service is no more

than 25c to the cellphone companies.

The cut to interconnection rates was likely to reduce the revenues

of cellphone companies.

They receive R5.4 billion yearly from Telkom, which in turn nets

R800?million from mobile network operators.

However, lower prices could encourage people to make more calls

during peak hours. Invariably, higher usage could boost revenues.

“It is going to be cheaper to make calls from landlines to mobile

phones if the interconnection rates are cut,” said fund manager with Cadiz

African Harvest Mark Ansley. “People will use landlines more given that rates

will be cheaper.”

Arthur Goldstuck, who heads research firm World Wide Worx, said

regulators needed to force cellphone companies to reduce or scrap mandatory

charges, such as itemised billing, imposed on contract clients.

“The cellphone companies need to be transparent as to how the cost

of the call is broken up,” Goldstuck said.

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