Cellphone rates to come down: ICASA - Times LIVE

Oct 29, 2010 11:09 AM | By Sapa

Mobile phone companies will have to cut charges for handling calls from other providers, the Independent Communications Authority of SA said on Friday.

Termination to a mobile location from March 1, 2011 to 28 February, 2012 will be 73 cents at peak and 65 cents at off-peak times.

The rates are currently 89 cents and 77 cents respectively.

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.

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.

Stage set for battle over telecoms rates | TechCentral

The stage is set for a battle of epic proportions at public hearings in Johannesburg next week. That’s when operators will make their arguments for and against proposed cuts in wholesale call termination rates.

MTN, for one, has warned of dire consequences for its business and for the entire mobile ecosystem if industry regulator, the Independent Communications Authority of SA (Icasa), proceeds with its plans to cut mobile call termination rates to 65c/minute this year. Other operators have also lodged strong objections.

Icasa wants the rates — the fees the mobile operators charge each other and other telecommunications companies to carry calls onto their networks — reduced to 65c in July. This would follow a 36c voluntary cut by the mobile providers on 1 March.

High mobile interconnection rates have been blamed for keeping retail prices high and for keeping new competitors from emerging.

Now, MTN has gone on the offensive. In its submission to Icasa ahead of public hearings scheduled for 28 to 30 June, the company says the draft proposals “suffer from serious legal and regulatory flaws”.

Moreover, when the March rate cut is factored in, the “drastic nature of the proposal is truly revealed”, MTN says. “In fact, it represents the most aggressive mobile termination rate price control MTN has ever seen: the peak rate would fall from R1,25 to 65c in just four months, and 70% of the total 85c cut proposed by the authority would take place between March and July this year.”

The operator says the impact of too steep and unbudgeted-for cuts in one year would force it to take “dramatic cost-cutting actions in the second half of 2010, affecting not just MTN’s business, jobs and investment plans, but also its customers and the whole mobile ecosystem” of least-cost routing companies, independent service providers and distributors.

“The ‘business shock’ is further heightened by the removal, overnight, of the peak and off-peak price structure that has characterised the market for the past 15 years, with great wholesale, retail and network disruption,” MTN says in its submission.

Vodacom, though disagreeing with large sections of the proposed cut in termination rates, has taken a more conciliatory approach to the regulator. In its submission, it says it agrees with Icasa that the wholesale cost-based rate is about 40c/minute — the level the authority has proposed the rates be cut to in July 2012.

However, Vodacom has objected to what it thinks is a too-steep “glide path” — the two-year period over which the rates will come down. It says the proposed timeframe is “far too aggressive and will significantly impact on the wholesale and price structures of the SA communications industry”.

Vodacom wants to delay the first step in the proposed guide path until March 2011. “This will assist businesses to factor the new rates into their business models and decisions for the next financial year,” it says.

Like MTN, Vodacom has also questioned the process Icasa has followed in creating the draft regulations, and has warned that, if issued in their current form, would be “unlawful and open to judicial review”.

Cell C, meanwhile, has — not surprisingly — argued for asymmetric termination rates that favour it over its bigger mobile rivals. In other words, it wants Vodacom and MTN to pay it more than it pays them to carry calls between their networks.

The country’s newest and smallest mobile operator argues that higher termination rates have undermined its full potential. It has objected to being defined as an established operator with significant market power for the purposes of regulation, alongside the likes of Vodacom, MTN and Telkom.

“The use of asymmetric mobile termination rates for an interim period will promote competition in the long run in the SA mobile market as this will enable Cell C to grow its market share and become a more effective competitor,” Cell C says.

— Duncan McLeod, TechCentral

Telkom warns it may keep rate cuts to itself | TechCentral

Outgoing Telkom CEO Reuben September has warned the group’s customers not to expect an automatic cut in fixed-to-mobile call charges that are directly in line with future reductions in wholesale mobile call termination rates.

In March, Telkom elected to pass on the entire 36c/minute saving when peak-time mobile termination rates were reduced from R1,25/minute to 89c/minute.

Mobile termination rates are the interconnection fees the cellphone operators charge each other and other telecoms companies to carry calls onto their networks.

Parliamentarians and government officials have lobbied hard for the rates to come down, in part because they’re seen as a barrier to new competitors emerging in the mobile industry.

Industry regulator, the Independent Communications Authority of SA (Icasa), wants the rates reduced to 65c/minute next month in both peak and off-peak periods. It wants further reductions to 50c/minute next year and to 40c/minute in 2012.

Icasa is set to hold hearings next week to consider submissions from the operators, some of which have argued for a longer “glide path” down to 40c.

Though Telkom passed on all the benefits of the initial and voluntary cut in mobile termination rates in March, September says there’s no guarantee the same will happen the next time the rates are cut.

“This matter requires further evaluation and we will make our position clear at the appropriate time,” he says.

However, Telkom may not have any choice in the matter. Communications minister Siphiwe Nyanda is keen to force down the cost of telecommunications and, given government’s nearly 40% shareholding in Telkom, there’s a fair chance the company will come under political pressure to pass on all the benefits to its customers.

— Duncan McLeod, TechCentral

Interconnect hits mobile service providers

By Candice Jones, ITWeb online telecoms editor
Johannesburg, 19 May 2010

The interconnect rate cut already directly impacts margins for service providers.
Planned lower interconnect rates could have devastating consequences for the mobile service providers supplying distribution and airtime for the mobile operators around SA.

Local service providers, such as Nashua Mobile and GloCell, are concerned the revenue crunch put on the likes of MTN, Vodacom and Cell C, will have a bleed effect into the distribution channel, a squeeze that could see several small companies go out of business.

The concern has been sparked by the decrease in mobile termination rates, implemented at the beginning of March. The regulator has now proposed another set of rate cuts that have the operators scrambling to make up revenue losses through serious cost-cutting initiatives.

Both Cell C and Vodacom have indicated they plan to implement these initiatives soon, and Vodacom says it hopes to save in the region of R500 million in the coming financial year.

During Vodacom's financial results presentation earlier this week, the company explained the savings would have to come from areas including distribution, sponsorships and network optimisation.

Mom and pop problems

In an exclusive interview with ITWeb, Nashua Mobile MD Chris Scoble said: “If the mobile operators get squeezed, they squeeze us.”

He says the company is concerned by the decrease in termination rates and the culminating cost-cutting by the operators. “These rates not only affect the mobile operators, they affect many companies. One of our competitors has already retrenched many people,” he explains.

While he is concerned by the troubles that could stem from the rate cuts, he says Nashua Mobile is still in a good position. “A bigger concern will be for the smaller businesses, those with 10 to 20 people. They will most likely be pushed out of the market.”

Scoble says a similar situation happened to South African pharmacies not too long ago, when the regulator in that industry pulled the plug on service charges for prescriptions. “Family-owned pharmacies went out of business, now many of the pharmacies in SA are owned by Clicks,” he adds.

Nashua Mobile, like many of the local operations, believes the market would have sorted itself out and regulatory intervention was unnecessary.

Rural rumbles

Alessandro Mariola, GloCell CEO, says his company is in a similar situation. “The mobile operators are always looking at the margins, and we do substantial work for them.”

However, the impact on GloCell as a business will depend on how the operators react to another cut, he notes. The lower interconnect rate already has a direct influence on the business, because lower call rates means lower margins. “The channel's earnings will be directly affected by the cuts.”

He says the outlying and rural areas of SA will see a heavy hit, and many of the informal players in those areas will be out of business. “The informal players would bring bulk airtime to the outlying settlements at a premium, they will no longer be able to do that,” he notes.

GloCell plays to the lower LSM market and has had some first-hand experience around the success of airtime distribution to the second economy. Mariola says the cellphone registration laws have had a similar effect on the market in those regions, shutting down many of the smaller retail and independent distributors.

“You will see consolidation in the channel now, and the smaller players will definitely fall away,” he adds.

GloCell says it is looking at bringing technology into the rural areas to help mitigate the loss that much of the population in those areas can expect. “We want to see if we can turn a cellphone into a business for those people,” he explains.

Long-term contract

Local airtime distributor Blue Label says it is not particularly concerned by the expected cost crunch, since it has signed several long-term contracts with operators for distribution.

The company's media and investor relations manager, Michael Campbell, says the current climate can be expected in a maturing mobile market that SA is now facing. “It is healthy to see the pressure on the market,” he explains.

For Blue Label, the cost-cutting initiatives will provide a little more clarity and less complexity in the market. “It will take out the smaller players in the chain, which will also take out many of the inefficiencies,” explains Campbell.

Vodacom tried to reassure the service providers when it presented its results to investors on Friday, saying it will work with the channel to find efficiencies.

However, all the providers are preparing for a possible price squeeze in the near future.

Altech Autopage Cellular was not available for comment at the time of publication.

Icasa drops interconnect fee bombshell | TechCentral

Icasa drops interconnect fee bombshell

The Independent Communications Authority of SA (Icasa) has dropped a bombshell on SA’s telecommunications industry. It wants mobile termination rates slashed to just 40c/minute by July 2012, from 89c/minute during peak calling time now.

Fixed-line rates will also be cut and Icasa has warned operators that it expects them to pass on the benefits in the form of lower retail tariffs for consumers.

Icasa, which is to begin regulating termination rates for the first time, wants the fees dropped from 89c/minute now to 65c in July.

It then proposes further reductions, to 50c in July 2011 and 40c in July 2012.

The distinction between peak and off-peak rates is to be scrapped as this is “more beneficial in terms of tariff transparency as well as a lighter regulatory burden”. The off-peak mobile termination rate is currently 77c/minute.

In a surprise move, the regulatory authority has also proposed a reduction in fixed-line termination rates, from a new rate of 15c/minute in July 2010, falling to 12c a year later and to 10c in July 2012.

Fees for call termination, which is a category of network interconnection, are the fees the operators charge one another to carry calls onto their networks.

Icasa chairman Paris Mashile (pictured) outlined the new rates at a press conference at its offices in Sandton on Thursday morning.

ECN Telecommunications CEO John Holdsworth, who has been at the forefront of the fight to have mobile termination rates reduced, has expressed delight at Icasa’s announcement. “This is meaningful and far-reaching,” Holdsworth says. “This is effectively a set of regulations for consumers and new market entrants.”

Mashile says both fixed-line and mobile operators must pass on the benefits of lower termination rates to consumers.

“We expect fixed-to-mobile call rates to reduce as the mobile termination rates are reduced,” he says. “We have already benefited from a 100% pass-through of the recent reduction in mobile call termination rates for fixed-line subscribers and we would encourage this practice to continue.”

Mashile says Icasa also expects “some measure of pass-through [leading] to a reduction in retail prices of calls between mobile networks”.

“Given the nature of product bundling in the provision of retail mobile services, we expect that price reductions will be subject to dynamic competition,” he says. “Icasa’s view is that a lack of effective pass-through to retail prices [will] indicate there may be a lack of effective competition in the retail market for mobile services.”

Mashile says Icasa will “monitor price movements in the retail market for mobile services vigilantly over the coming months to evaluate whether further action is required”.

Icasa will hold further hearings on the proposed reduction in tariffs. These are scheduled for 9, 10 and 11 June.

— Duncan McLeod, TechCentral

Bain warns consumers not to expect cellular price cuts | TechCentral

— Duncan McLeod, TechCentral

Consumers should not expect lower retail tariffs to flow from the recent reduction in mobile interconnection rates, as there is “no correlation” between the two concepts.

That’s the view of Vittorio Massone (pictured), newly appointed managing partner in SA at management consulting firm Bain & Company.

Mobile operators Vodacom, MTN and Cell C recently agreed to reduce the interconnection fee, the money they charge each other and other operators to carry calls on their networks. The rate fell from R1,25/minute to 89c/minute during peak times on 1 March.

Massone, who specialises in consulting to companies in the technology, telecommunications and media sectors, says regulators elsewhere in the world have pushed down interconnection fees to facilitate new entrants into the market rather than to bring down retail tariffs.

SA’s incumbent mobile operators have been accused by some industry players of using high interconnection fees as an crude anticompetitive club to keep new players from emerging. Because new players have few customers at first, most calls on their networks will be to networks of other operators. High interconnection fees make it difficult for them to enter the market.

In SA, the reduction in interconnection fees should help facilitate Telkom’s entry into the mobile market and could also assist Cell C in gaining market share from bigger rivals Vodacom and MTN, Massone says.

In saturated mobile markets like SA’s, where customer churn rates are also relatively high, a new entrant like Telkom could put downward pressure on retail pricing.

However, Massone says it’s unlikely the operators will engage in a price war. Rather, he says, they should focus on differentiating themselves by introducing segmented products and services designed to increase customer loyalty.

“In a country which is so complex and heterogeneous, you can find many ways to segment the customer base,” he says.

In the consumer space, for example, operators should consider introducing packages tailored to the millions of Zimbabweans working in the country. These consumers have specific needs, including the ability to transfer money electronically to their families back home and to home call relatively cheaply.

Another example on an area not well addressed by the mobile operators is small and medium enterprises, Massone says.

And experience in Europe suggests people who play videogames respond well to packages aimed at them.

Offerings aimed at specific religious groups also work well.

By introducing value-added services and offerings tailored to specific consumer segments, operators are able to increase loyalty and spend and reduce churn.

Despite political pressure for interconnection rates to come down substantially, Massone warns that industry regulator, the Independent Communications Authority of SA, should be careful not to reduce them too much.

If the cuts are too deep, the operators will stop investing in new infrastructure, he says.

“If I were the regulator, I would want the operators to build high-quality infrastructure in areas where it’s not so financially sustainable to do so,” he says. “If you cut interconnection too much, they won’t go into the rural areas.”

Turning to Telkom’s plans in the mobile market, Massone says the company should play to its strengths in the corporate and small and medium enterprise markets.

Telkom ought to offer integrated offerings to business customers, including fixed-line and mobile services, coupled with Internet access, outsourcing and network management.

He says Telkom shouldn’t be too aggressive in its retail pricing in cellular.

“Anyone can reduce prices,” he says. “The day after you do it, everyone will be out with an offer that is like yours or even slightly cheaper.

“Also, you’d be educating your customers to buy on price and telling them you don’t have anything else to offer other than price.”

Telkom customers score

By Paul Vecchiatto, ITWeb Cape Town correspondent

Cape Town, 16 Feb 2010 Telkom is to reduce its fixed-to-mobile call rates from 1 March by 36c, from R1.65 to R1.29, per minute, which is about a 22% reduction.

In a letter presented to the Parliamentary Portfolio Committee (PPC) on Communications today, Telkom group executive for regulatory affairs Andrew Barendse wrote that these new rates have already been agreed to with MTN and Vodacom. He said the new tariffs are waiting for finalisation with Cell C and the regulator's approval of Telkom's tariffs.

“In support of the PPC's initiative and government's call to reduce the cost of communications, Telkom will, therefore, put approximately R1.3 billion back in the pocket of Telkom's customers. Telkom trusts that the PPC will find this in order,” Barendse's letter says.

Barendse wrote that, although not legally obliged, Telkom has decided to give a 100% pass through on the reduction of mobile termination rates (MTRs) to Telkom's retail customers for fixed-to-mobile calls.

“Telkom has, in the interim and in anticipation of the successful interconnection negotiations, also filed fixed-to-mobile retail rates with ICASA,” he added.

After reading the contents of the letter to members of Parliament, communications committee chairman Ismail Vadi said he welcomed the news. He indicated that Telkom would be invited to present before the committee on interconnection rates and other issues at a date still to be set.

The committee is currently questioning ICASA on its plans to reduce MTRs significantly by the end of June.

ICASA approves InterConnect charges

It’s official! The Independent Communications Authority of SA (Icasa) has approved revised applications from Vodacom, MTN and Cell C: mobile interconnection rates, the fees they charge each other and other operators to carry calls on their networks, will fall from R1,25/minute to 89c/minute in peak times on 1 March.

Off-peak rates will remain unchanged at 77c/minute.

Read more at http://www.techcentral.co.za/its-official-icasa-approves-cellphone-fee-cut/12741/

Cape Town
Feb 2010

Interconnect Rates and our LCR - where to now?

We are inundated with requests for information and guidelines [from our clients and business partners alike] on what to do about the Interconnect Rates and our LCR. Many of our clients are sitting on the sidelines not making decisions because they don’t know what to do and the resulting loss in savings is punitive.

To make matters worse ICASA announced yesterday 1st Feb 2010, that they are not be accepting the proposal from the GSM networks and Interconnect rates are NOT coming down on the 1st March 2010 anymore [well for today this is the status quo anyway].

So what do you do about LCR in today’s telecoms landscape and how should your business be proceeding. Should your business leverage LCR or adopt a wait and see approach?

Here follows some guidelines on how to approach LCR and or any telecoms infrastructure for that matter –

1. Don’t renew any subscription based contracts for GSM LCR
a. There is no law stating that you cannot run month to month and all LCR service providers will allow you to run month to month
b. Subscription based LCR with a 24 month contract period is definitely not the way to go
i. As a minimum you want your business to be paying for calls made
ii. And you don’t want to be managing bundled minutes / SIM cards

2. The reality is that there is more choice in SA now with the arrival of Neotel and the VANS – meaning that Least Cost Routing of all call type’s – not just GSM – is important when it comes to containing teelcoms costs and probably always will be – especially
a. Regional
b. Inter branch - why carry costs on your MPLS if someone else will do it for R 0.15 and guarantee quality of service
i. Local, National and GSM; all these calls can now be routed cost effectively using LCR

3. Whilst price plays a big role in any RFP or procurement process; price alone cannot dictate your procurement strategy for telecoms. Business need should drive procurement strategy and price should play a role – i.e. what is the least cost route for my traffic taking my unique business need into account.
a. Market forces, Legislation and Quality of service [QoS] will dictate the right price for your unique business need
b. Buy in from all roles players on strategy is advisable
c. Ask your trusted suppliers / advisors what they think and what new “innovative” products they have available to you
d. Business needs change and therefore clarity is NB on –
i. Current Business Needs
ii. Future Business Needs

4. Ensure your commercial agreements with Service Providers provides you with a so called “technology catch fence” which is essentially an “out clause” in the contract stating that if the market moves and the service provider cannot match the service you can “get out of “ the contract -
a. This will give you and your management team the comfort levels you require to move forward knowing that if the markets move you are not tied into a long term contract
b. Most SP’s are currently joined at the hip in one way or another and when the market moves they will all move together / although we could see major changes with the new fiber networks and the competitive nature of SA’s telecoms market in 2010.

5. Whilst price is important so is -
a. Quality of service / voice quality
b. Optimised infrastructure – a “must have”.
i. So many businesses put LCR in place and don’t pay attention to the “overcapacity” issue; resulting in increased fixed monthly costs.
• Pay careful attention to Zero Billing assets
• Watch your concurrent calls analysis per site for the signs of overcapacity
• Reduce telecoms infrastructure requirements where possible
c. Service Level Agreements / response times / maintenance costs / roles and responsibility
d. Service Provider “Support Structures” such as customer service desks and operational support / project management
e. Redundancy of infrastructure / continuity of business – especially mission critical call centers / business processes / operational centers

6. The fact that you cannot squeeze SP’s until they have nothing left and then expect great service in return
a. Rather focus on great value and great service
b. There needs to balance
c. That’s why pricing only receives a 25% weighting in RFP’s we have been involved in

7. Critical business processes like – call centers / business processes / operational centers normally require redundancy
a. Redundancy should never be a price motivated decision
b. Rather savings extracted from telecoms initiatives need to pay for redundancy
i. i.e. more value for at a cheaper cost
c. User experience
i. Bad quality – bad experience for customer and employee alike
ii. Bad for business

8. Infrastructure
a. Optimised infrastructure is a “must have”. So many businesses put LCR in place and don’t pay attention to the “overcapacity” issue; resulting in increased fixed monthly costs.
i. Pay careful attention to Zero Billing assets
ii. Watch your concurrent calls analysis per site for the signs of overcapacity
iii. Reduce telecoms infrastructure requirements where possible
b. Watch the rental costs per line / port
c. “Minimum billing” versus managing “subscriptions bundles” and “rented ports “
i. Passes Risk of zero billing issue over to the SP / no longer your problem
ii. If the Service Provider carries only charges for calls and not to rent the port your business can
• drive down fixed costs
• invest in redundant options
• and save money

Waiting for the market to dictate policy and business need is not a good business practice. As a business one needs to have a plan. And DataRoom can help you formulate that plan. So get us involved in the areas where we can help you formulate a way forward and provide that much needed clarity that will enable you to make an informed decision.

There is no easy answer, but should you wish to maintain savings and or increase savings using LCR, there are no short cuts. You need to do the work before you make the call.

These are our thoughts / guidelines rather than rules and if you have any questions please pick up the phone and call us.

Peter Walsh
Cape Town
Feb 2010

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

MTN and Vodacom deny allegations of collusive behaviour

BUSINESS DAY REPORTER [normally this means Lesley Stones] published: 2009/10/20 06:24:55 AM

MTN and Vodacom yesterday denied allegations of anti competitive behaviour despite confirmation by the Competition Commission that it was widening an antitrust probe to investigate possible collusion.

The commission uncovered information on possible anti competitive behaviour by the cellphone operators during an investigation into interconnection fees, commission head Shan Ramburuth, said yesterday.

“In the course of our investigation we have not restricted it to interconnect rates,” he said.

Ramburuth declined to specify practices that were being added to the investigation. The commission had been investigating interconnect rates for the past three years, he said.

News of the investigation pulled down shares of both companies, Andrew Todd, an analyst with Imara SP Reid, said.

MTN stock fell as much as 1,3% to R120,90 in morning trading before closing at R122,50, while Vodacom shed as much as 2,2% to R54,49 and closed at R55,70.

Both companies have, however, denied that they were involved in collusive practices. “MTN denies that it has engaged in collusive conduct relating to interconnection,” it said.

Vodacom was also equally not fazed by reports of a probe, with a spokesman also telling Business Day that “Vodacom is not involved in anti competitive behaviour”.

The commission has investigated three complaints against mobile operators, including MTN, relating to interconnection.

The government has focused on the rates cellphone firms charge for connecting calls across networks as a first step in lowering prices.

It takes two to termination tango

www.techcentral.co.za

[By Dominic Cull] A flurry of initiatives aimed at achieving a reduction in mobile termination rates will provide interesting sideshows, but beneath the politics of the moment, the real action remains an intimate dance between the Independent Communications Authority of SA (Icasa) and the mobile networks.

The initial mobile termination rate, also known as interconnection rate, of 20c/minute was set between Vodacom and MTN on 8 August 1994. This was amended on 28 May 1999, shortly after it was announced by government that a third mobile cellular telecommunications licence would be issued.

Vodacom and MTN issued a joint notification to the SA Telecommunications Regulatory Authority (Icasa’s precursor) that they had decided on the following phased increase in the rate:



A final increase to the current rate was implemented by Vodacom and MTN on 1 November 2001. Cell C launched on 17 November 2001 and had to accept this rate.

Eight years later, the parliamentary portfolio committee on communications will hold public hearings on the rates after issuing a proposal that would see rates reduced to 60c/minute from 1 November 2009.

At a recent briefing session the committee expressed a view that there had been “tacit collusion” between the operators and that “phenomenal increases” in termination rates had led to “exorbitant profits” and acted to the particular detriment of poor and marginalised communities.

Given this level of rhetoric, the appearance of executives of the mobile networks at the hearings in October promises to be compelling viewing.

The department of communications has also told parliament that regulating mobile termination rates is essential in order to achieve competitive pricing and that this is one of its priority action items. It has stated that it will consider issuing policy directions to Icasa to achieve this.

Meanwhile, the embattled regulator has launched an initiative which it terms “moral suasion” as a way of trying to effect a short-term reduction in the rates. This process is in practise nothing more than Icasa asking the operators to go and renegotiate the rates on a bilateral basis — which is how interconnection rates are set under the Electronic Communications Act — and then to report on their progress to a multilateral forum.

Though I have my own thoughts regarding the somewhat speculative nature of appeals to the morality of mobile network operators, it is interesting that Icasa has made it clear that it knows the cost of termination and will not accept any proposal from the operators which is out of line with this figure.

While both initiatives should be welcomed in that they at the very least raise consumer awareness, they share a common lack of legislative or regulatory authority. Any reduction in mobile termination rates flowing from these processes will be essentially a voluntary — or rather “voluntary” — act by the operators and as such a product not of method but of compromise.

The regulatory process to be followed by Icasa under the Electronic Communications Act before it can set interconnection pricing remains the most important avenue for reducing the rates. And it is here that all the problems are to be found.

In assessing Icasa’s performance to date in dealing with mobile termination rates, the parliamentary portfolio committee, in the particularly pugnacious form of Adv Johnny de Lange MP, offered a brutal analysis of Icasa as vertebrally challenged and incapable of making decisions. Icasa, he said, should be neither a friend of nor prisoner to industry.

Accurate this may be, but it could also be argued that government’s apparent disinterest in having a strong communications regulator has played a major part in the current ineffectiveness of Icasa.

Process is a problem for the regulator — it has been tripped up by procedurally on a number of issues over the past two years and is perceived by industry to be vulnerable to legal threats. Icasa admits that it is litigation-averse, a sense no doubt heightened by the anticipated receipt of Vodacom’s bill for legal fees flowing from the suicidal urgent interdict to prevent the operator’s listing earlier this year.

It seems that Icasa is unwilling to accept the opinion of Gilbert Marcus SC to the effect that it can pursue a simplified approach based on a benchmarking exercise. It has received its own legal advice — together, no doubt, with that offered by others — which points to a lengthier process. This is not necessarily a bad thing but the exact process to be employed is not yet clear.

It is a sure thing that mobile termination rates will come down. The best-case scenario is probably a significant initial “voluntary” reduction effected within six months followed by a regulatory pricing regime finalised within a year.

A word of caution: the political will which spawned the current initiatives to reduce the rates also present a significant threat. There is a danger that a vulnerable Icasa will, in seeking to finalise the required process in the shortest possible time due to political pressure, compromise its process.

While this may not be challenged in the context of termination rates, it is highly likely to prejudice other critical interventions such as local-loop unbundling and, perhaps, the application of a use-it-or-lose-it policy to the assignment of spectrum.

What is the cost of mobile call termination? In response to a question from the portfolio committee, Icasa stated that it “had done its own analysis of costs and has found that the cost is not more than 40c”.

The “not more than” in this statement speaks to a worrying lack of precision, but the regulator has at least come up with reasonably accurate figure which is less than the rate paid from 1999 onwards. The answer probably lies between this and ResearchICT Africa’s suggested 25c, but a reduction to 40c would make an excellent start.

So we know the answer. We just don’t know how to get there.

Dominic Cull specialises in electronic communications regulation. Find him online at www.ellipsis.co.za.

Government calls for drop in cellphone call charges

by — Duncan McLeod - www.techcentral.co.za

Newly appointed communications director-general Mamodupi Mohlala says government wants mobile operators to reduce prepaid tariffs by passing on a planned reduction in interconnection fees to consumers.

At the same time, Mohlala says her department is working hard to push through an amendment to the Electronic Communications Act to make it easier for the Independent Communications Authority of SA (Icasa) to regulate interconnection rates.

These are the rates the mobile operators charge one another and other telecoms operators to carry calls on their networks. Political pressure is mounting for the rates — which are set at R1,25/minute in peak times — to be cut dramatically.

“I completely agree that termination rates must be looked at,” Mohlala says in an exclusive interview with TechCentral. “From a wholesale perspective, it would facilitate competition … [by empowering] not only Cell C but also all the newly licensed operators.”

Mohlala says communications minister Siphiwe Nyanda has initiated discussions with the mobile operators. She says the department wants the operators to offer an immediate cut, after which Icasa will intervene with regulations that will see the rates falling further according to a sliding scale.

She declines to say how far government would like to see the rates reduced, but says the fees should ultimately be set by Icasa based on operators’ costs.

She says her department welcomes the intervention by parliament’s portfolio committee on communications, which has summoned the mobile operators to hearings in Cape Town on 13 October.

“We need all hands on deck,” she says. “Parliament, the ministry and Icasa must work hand in hand to resolve this matter.”

She says chapter 10 of the Electronic Communications Act will be amended in the current session of parliament to make it easier for Icasa to regulate termination rates and introduce other regulations.

“We want to amend the act to make Icasa’s ability to execute in terms of its mandate a lot easier,” she says. “We are working day and night to make sure it happens in this session of parliament.”

Mohlala warns operators that once interconnection rates come down, government wants to see a cut in retail tariffs.

“We hope the operators will come up with packages that are more reasonable, at least from a prepaid point of view,” she says. “If there could be some immediate relief to low-income earners, that would be highly beneficial to the consumers of telecommunications products, especially in these hard economic times.” — Duncan McLeod, TechCentral

Cellular firms face chorus for fee cut

by LINDA ENSOR and LESLEY STONES - www.businessday.co.za

Big drop in interconnection charges likely as MPs criticise ‘exorbitant and excessive’ costs

DRASTIC reductions in the cost of calling one cellphone network from another could finally be on the way, with politicians demanding that fees are slashed from R1,25 a minute to just 60c on November 1.

The interconnection fee may fall by another 15c each year until it costs just 15c by 2012 — an enormous plunge of 88% that will directly benefit consumers.

The cellular operators will be given a chance to object to the proposals when they are called before Parliament’s communications committee next month.

But the African National Congress (ANC) made it clear that if operators did not willingly co-operate, legal amendments would be pushed through so they had no choice, said Jacques du Toit, MD of telecoms operator Vox Orion.

Du Toit was in Parliament yesterday when the committee tore into the Independent Communications Authority of SA (Icasa), condemning it for failing to curb the “exorbitant and excessive” fees charged by mobile operators for switching a call between rival networks.

“The network operators have to explain why the fee shouldn’t be 15c by 2012,” said Du Toit. “They will be given an opportunity to present their costs. But if they don’t come up with a number the ANC likes, the law will be amended so that the government can set the fees.”

Icasa estimates that the cost of linking a call is 40c a minute. Yet it has failed to force the fees down, and yesterday it still argued that it must conduct more research before it could intervene.

“When Icasa told the committee it had to investigate properly, the ANC said it would not tolerate that any more,” Du Toit said.

“There was a major fight. Icasa proposed the fees should come down by February next year and the ANC ripped into them and said that was unacceptable.”

The committee signed a resolution proposing that the operators must slash the interconnection fees almost immediately, and must pass on the savings to consumers.

It blamed the “shockingly high” fees on “apparent historical collusion between dominant mobile operators in the country — which has placed profits and greed above people — and the incapacity of Icasa to effectively regulate this matter”.

The resulting expensive call fees had harmed the economy and citizens and were “socially indefensible and economically unjustifiable”.

Icasa was urged to “act professionally, effectively and boldly to regulate interconnection rates”.

Du Toit said the operators would probably tell the committee that if the rates were slashed too dramatically, they would be unable to invest much more in network infrastructure. They might also argue that cost savings would have to be found elsewhere, and may involve job losses.

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.

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