Interconnect regulations ready to go | ITWeb

By Leigh-Ann Francis

Johannesburg, 22 Oct 2010

The telecommunications industry is set for another big shake-up as the Independent Communications Authority of SA (ICASA) commits to publishing the final version of call termination regulations on Friday, 5 November.

The highly contested regulations have been in the pipeline for some time now, as the authority sought to cover all procedural bases. This included opening the draft regulations up to public comment, holding public hearings, and most recently, conducting private meetings with specific players within the industry.

With all these milestones completed, ICASA spokesperson Jubie Matlou says the authority will publish the regulations ahead of its regular meetings with Parliament, which is scheduled for 9 November.

Matlou would not, however, comment on the degree to which the interconnect rates will be cut or over what timeline.

However, regardless of the interconnect rate levels contained in the new regulations, consumers should not get too excited, as it was earlier revealed that a reduced termination rate has no direct impact on retail pricing.

WWW Strategy MD Steven Ambrose explains that there was never any correlation between the interconnect and the cost of cellular calls, and the Department of Communications was simply being populist in its advocacy of having these cuts in the name of lower telecommunication costs.

The only real impact of rate cuts would be on off-net costs, which will, in turn create competition, eventually resulting in consumer savings, but this is still years away.

The proposed regulations have been met with mixed reaction from industry, as smaller players advocate for increased competition, while bigger players argue that the proposed cuts are too drastic.

Possible cuts

Mobile operators will have the most to lose if the proposed regulations are passed, as they are, into final format, since they will be forced to drop the interconnect rate by 50% this year alone, including a voluntary rate cut from R1.25 a minute to 89 cents, in March.

Further to the voluntary cuts, the draft regulations proposed that the rate again be cut to 65c, in July, with a glide path leading to 40c by July 2012.

However, the July reduction was delayed after mobile operators voiced their concerns at public hearings, arguing that the proposed glide path was far too drastic and would likely shock existing business models.

It is not yet known whether the authority will heed these concerns or if it will still enforce the rate cut to 65c a minute this year. The latter option, however, has been met with much resistance from industry.

Strong resistance

During its last interim results presentation, Vodacom reported close to R400 million in lost revenue, due to lower mobile termination rates, which is why the operator has been opposed to yet another cut this year.

At the time of the hearings, Vodacom MD Shameel Joosub noted: “The proposed glide path is steep and unprecedented, to such a striking degree that, if not modified, the shock to existing business models will be devastating.”

Joosub explained that an eco-system exists around the current mobile termination rates, noting that further cuts this year do not create space for business plans or planned capital expenditure programmes to be revisited.

MTN echoed these concerns and pointed to the effects of the voluntary rate cut in March, which resulted in a 30% reduction in the company's 2010 capex, resulting in MTN cutting jobs and seeing an impact on its channel.

ICASA hit back at the time, arguing that a regulator is not compelled to offer a glide period; however, this structured approach is to offer the industry time to adjust and compete in the new environment.

The regulator pointed out that mobile operators are suggesting that the regulator, in effect, delay the proposed consumer benefit for four years.