A charge too far

by Lesley Stones - www.businessday.co.za

Government is right to intervene on cell charges

THERE are very few occasions where governments should be encouraged to enter the telecoms and technology sectors. In these fast-moving industries, state intervention usually turns into interference, and stifles the progress and change the private sector is striving for.

However, a glaringly obvious place where intervention is needed is the extremely high interconnection fees that operators charge for placing a call to a rival network.

Anyone who examines their bill will see that a cross-network call is far dearer than an on-network call, as the operators are adding R1,25 a minute at peak times.

Why do they do that? Well, because they can. The fee was initially introduced to cover the cost incurred in linking a call from another network, to make sure an operator did not lose money when connecting a call from a rival network.

It only became a profit-gouging exercise when MTN and Vodacom dramatically raised their fee when Cell C launched, so Cell C also had to charge its customers a high fee for the calls they made.

Years later those prices remain, although it’s well known that the cost of providing the service is no more than 40c, and probably a lot less.

But why must consumers and businesses still pay those massive fees? The simple answer is that the operators will not voluntarily slash their profits, and the Independent Communications Authority of SA (Icasa) has proven endlessly inept at forcing them to do so.

This week Parliament’s communication committee did two laudable things. First, it proposed that the interconnection fee be cut to 60c from November 1. Second, it tore into Icasa, branded it as inept, and called for performance assessments for its councillors. About time.

For once, business should applaud this planned intervention in an otherwise privately owned industry. But it is not a done deal yet. The operators will be summoned to Parliament next month to “discuss” the issue.

The operators will probably argue that if the fees are cut too drastically, they will not make enough profit to invest in more much-needed network infrastructure, so the quality of service will suffer. They will point out that state intervention in the pricing practices of businesses is dangerous, and will deter companies in every sector of the economy from investing.

Both arguments are valid, yet both are easily solved. Setting a cap of 60c on the fee easily covers their costs, and still allows a decent profit. The committee’s plan to whittle the fee down in future years is reasonable, but the ultimate target of just 15c is too harsh.

Crucially, the committee must force this swift, sharp action in this one isolated instance, then butt out again.

As for performance measurements for Icasa, it must leave them in place forever.