The debate hots up on InterConnect Rates

Whilst certain industry players have been calling for a drop in the interconnect rates for years now, it remains to be seen if this will affect the consumer directly. History has shown [in countries that have lowered interconnect rates] that the service providers do not necessarily follow the interconnect rate reductions, with rate reductions in call costs. If they do it is only after a period of time and normally a gradual process.

However, in the last few months the public debate has really become robust. The VANS and LCR companies all are adding in their 2 cents worth and making promises of call costs reductions as and when the interconnect rates drop. And so they should, as they have the most to gain from this bun fight for market share.

However for me it is what the service providers who have nothing to say at this time are thinking that really interests me / large networks like MTN, Vodacom, CellC, Telkom and Neotel. I would dearly love to hear what they have to say about dropping call costs along with the proposed interconnect rate cuts – which at this time are just discussions with no agreement in place.

Here are a few links that will give you insight into what the various players have to say for themselves. Please bear in mind that everyone is spinning the angle that perhaps suits themselves the most.

http://www.techcentral.co.za/?tag=huge-group
http://www.techcentral.co.za/?tag=alan-knott-craig
http://www.techcentral.co.za/?tag=john-holdsworth
http://www.techcentral.co.za/?tag=voxorion
http://www.techcentral.co.za/?p=911
http://www.techcentral.co.za/?p=1052

At the moment we can all only speculate and if you ask me for my opinion, I see a gradual reduction of rates over a period of years. A big bang approach will not be good for the market and the big players will protect that market vigorously.

To give you an idea of what the InterConnect is worth to the big guys - read these stats from MyBroadband -

What Vodacom and MTN earn through interconnect

For the financial year ending 31 March 2009 Vodacom generated R 8 632 000 000 through interconnection in South Africa, up from R 7 945 000 000 a year ago. This is the company’s second largest revenue stream after ‘airtime and access’, and is far higher than the R 5 973 000 000 generated through data services (SMS, MMS & broadband) or the R 5 190 000 000 from equipment sales.

MTN generated R 6 951 000 000 in interconnect revenue for the financial year which ended December 2008, up from R 6 346 000 000 for the previous twelve months. As is the case with Vodacom it is also the second largest revenue generator for the MTN behind airtime and subscription revenue.

MTN’s interconnect revenue is in fact more than its data and SMS revenue (R 3 596 000 000) and cellular telephone and accessories sales (R 3 122 000 000) put together.

So if InterConnect Rates are to drop, the big players will have to give up some serious revenue. And if they lose revenue will their shareholders still be so happy to be financing those network upgrades. I think that there is a double edged sword to dropping the InterConnect Rate.

I will add more information into the mix as and when more information becomes available.

Peter Walsh
JHB – 13th Sept. 2009