Interconnect cuts slow telecoms growth // ITWeb

By Leigh-Ann Francis
Johannesburg, 23 Sep 2010

Increased competition in the local telecoms market, coupled with the impact of falling mobile termination rates (MTRs), will restrict market growth in an already slowly recovering economic climate.

BMI-TechKnowledge senior analyst Tertia Smit, who wrote a recent report on the corporate and SME telecoms market in SA, predicts a market growth of only 5% over the next five years, with most of the growth coming form Internet and data services.

“Growth in the telecommunications sector has generally slowed down in the past year and this will continue until the end of the year, due to the slow recovery of the economy. The next few years will continue to be difficult due to ongoing regulatory uncertainty, and increased competitiveness, as well as the impact of falling MTRs on the LCR [least cost routing] market,” she says.

Vodacom's latest quarterly results showed the operator had taken a heavy knock from lower interconnect rates, reporting a loss of close to R400 million.

Earlier this year, pressure from the Independent Communications Authority of SA (ICASA) resulted in Vodacom, MTN and Cell C dropping interconnect rates to 89c per minute, from R1.25.

With operators still reeling from the effects of the first cut, ICASA had hoped to implement draft regulations for a further rate reduction this year, to 65c per minute, with the objective of reaching an interconnect rate of 40c, by July 2012.

However, mobile operators have been up in arms over the proposed glide path, and ICASA's regulations have not yet been finalised.

Despite the impact of MTRs on market growth, BMI-T suggests the situation presents an opportunity for fixed-line operators.

Flat fixed-line growth

BMI-T forecasts that, despite an expected 4% fall in fixed-line connections, mainly on the residential side where fixed-mobile substitution continues unabated, fixed-line voice revenues will record relatively flat growth over the next two years.

Neotel is partly responsible for this, as it continues to grow its share of the PSTN (public switched telephone network) voice market.

Growth in the fixed voice market could be somewhat improved, BMI-T believes, if Telkom and Neotel introduce offerings that take advantage of the falling MTRs by picking up traffic along fixed-to-mobile routings that was previously routed by means of 'traditional LCR' (using cell routers).

Incoming Telkom Mobile has previously stated that the primary purpose of its mobile offering would be to offer converged bundle options.

“Although there is good growth in the mobile data market, the Internet market in general, and particularly the revenues derived from business customers, will continue to be negatively impacted in the next couple of years by the general level of competitive behavior,” says Smit.

“This includes a heightened level of competition between the mobile operators within the corporate sector, where more vigorous discounting may apply in future,” she states.