It's about creating competition and a free market

I am fascinated by the debate taking place on the interconnect rates in South Africa right now.

There is so much spin from the well oiled PR machines, resentment from VANS, anger from consumers, market talk and uninformed speculation taking place that we could be forgiven for not understanding what is actually going on.

Various role players each with vested interests are stirring the pot on this one. Players include the government, opposition political parties, consumers, the networks, the wannabe networks and ICASA, the ultimate example of a sleeping watchdog.

Everyone is harping on about how the networks should drop their interconnect rates and some even demand an immediate sharp reduction before Christmas. The media loves the opportunity to sell newspapers so all the role players are getting the publicity they seek and placing their spin into the marketplace.

The reality is that none of this was ever going to happen just because we said it should, and definitely not before Christmas.

Government has managed to over-regulate the telecoms market so much that it is going to take ICASA well into next year to deliver on the action demanded of them. There are a number of factors at play here which will affect the final outcome and the completion date – some of which are -

• Quite rightly, legislation requires that a process be followed by ICASA and this could take until June 2010 to happen.
• Competition law in South Africa states that dominant players cannot get together to discuss prices. So the shrill demands emanating from parliament that the networks get together and show each other their “costs to interconnect’ and agree a pricing structure going forward would see the role players commit a crime in the eyes of the law and ultimately end up in court. So that cannot happen.
• Networks are not obliged to lower the retail rates of calls even if ICASA passes legislation next year forcing them to cut the wholesale rates they charge each other. History in other countries shows there is a definite lag time between interconnect fees coming down and retail rates following suit.

So where does this leave us?

• At the mercy of the shareholders in control of MTN and Vodacom?
• Hopeful that the competition commission will find the networks guilty of collusion and give them a huge fine; thus guaranteeing they won’t be able to lower retails rates immediately because they have to cough up for a fine?

ICASA and the government have been sitting on the sidelines for years watching the lack of competition in the telecoms space stifle new entrants and enable dominant player to flourish. What they really need to do is create the space for competition and allow market forces to play themselves out, as they always will.

Trying to force the networks to drop their retail prices is a different ball game and in my humble opinion the wrong battle at the wrong time.

Dropping interconnect rates, even if it has to be forced onto the networks; will create a competitive space in which smaller players can compete for business fairly.
Releasing spectrum into the market [that oh-so-valuable bandwidth that the government is desperately trying to hold onto for its highly inefficient broadband provider Sentech] will create competition and drive down prices.

What won’t drive down prices is fighting with the dominant players about how they should run their business. Sure there are points to be scored and morally everyone will feel a lot holier than thou. But generally the big stick approach involves negotiation, and big businesses are better at that than the government.

What consumers require is a free market system that allows market forces to dictate the price. And the only people who will definitely hold MTN and Vodacom accountable on price are their customers.

So if the government just ensured that ICASA did its job properly, the free market would create the competition and price reduction we all so desperately seek.

Ends

Peter Walsh
Cape Town
29th Oct 2009
www.dataroom.co.za