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

Wanted: ICT Disruptor

Comment on Broadband by Alec Hogg

Over the past couple of weeks, I've been immersed in the recent history of our company ahead of my September labour of love - the 3 000 or so words that make up the CEO's letter in Moneyweb's annual report.

Reflecting on the past couple of years, it struck me how disappointed we South Africans should feel after being promised so much by the Johann Rupert/Aga Khan-controlled broadband wholesaler Seacom.

In the last couple of annual reports, I've relayed to shareholders how the undersea cable had the potential to transform South Africa's internet sector. Prices, we were told, would drop 90% as a flood of more than 100 times the current bandwidth would hit our country - transforming the online experience of everything from downloading emails through to watching videos on our laptops.

OK, it's only been a couple of months since Seacom landed at Mtunzini. But as a transforming force, its impact has been akin to those early BEE deals. A privileged few are surfing at the speed of sound. But for the vast majority, the impact has been underwhelming at best. The price reduction has been modest. Download speeds have hardly budged. Once again, the middle man - Telkom (JSE:TKG)- seems to have triumphed over public interest.

Sitting in on the Seacom/Altech (JSE:ALT) press conference last week made me wonder, not for the first time, why South Africans accept being gouged in the name of "market stability." Only now that the Competition Commission has highlighted a few of the worst examples are we looking differently at those who supply our steel, bread, cement pipes and airline tickets. But what about broadband? Does Telkom's part-Government ownership put a leash on our monopolies watchdog?

Seacom's CEO Brian Herlihy, a New Yorker who is clearly not used to operating in a market sewn up by colluding distributors, had to visibly restrain himself at that press conference. Seacom, he inferred, has delivered on its promise. But it is a wholesaler. It can only bring cheap and plentiful broadband to the beach. Seacom needs those next in the chain, the distributors, to come to the party. They control the channel to end-users. But so far, none of the distributors has broken ranks. Gouging out the last little bit of extra profit for as long as the informal cartel holds.

Herlihy is not an idiot. Those self-same distributors are his customers. So he attacks them publicly at his peril. But he did some gentle prodding of Altech's CEO Craig Venter, his company's key partner in East Africa where Seacom bandwidth - and targeted legislation - is transforming the ICT sector.

"Seacom's and Altech's mentality is completely aligned," Herlihy suggested, "Altech is not one of those companies who are determined to keep its profit margins as high as possible for as long as possible. We're going to see big things happening together in East Africa and hope to see that kind of thing in South Africa as well."

With a glance at his partner, Herlihy added: "What we need in South Africa is a disruptor......"

Venter, mindful perhaps of his conservative directorate, didn't bite. He steered the conversation back to his group's East African broadband distributor where, Venter said, Altech expects to generate almost half its earnings within two years. He calls broadband distribution "the next big growth engine of the Altech group". So with the focus to the North, any battle with the comfortable South African incumbents, Venter intimated, will have to wait. For now.

More's the pity. Not just for South African internet users who continue to pay excessive prices despite having cheap and plentiful bandwidth on their doorstep. But, perhaps, for Altech itself.

The road of the corporate disruptor is difficult, lonely and treacherous. But the rewards for shareholders can be enormous. Witness Richard Branson, whose Virgin Atlantic has overcome enormous odds to best the massive British Airways. Or, locally, Adrian Gore's Discovery Holdings which after being the disruptive force in medical aids has since done the same to life assurance.

Craig Venter is not a man to run from a fight. He took on and beat government's regulator when all others in his sector kept their heads down. He personally engineered his company's hefty bet in Kenya which many thought was foolhardy at the time. Now it's looking like the inspired brilliance of MTN's (JSE:MTN) investment into Nigeria.

But the Altech CEO's natural competitive instinct tendency is being tempered at home. By a bullying competitor? Or an over-conservative board? So South Africa's best bet of ending its starved and expensive broadband is being tethered. So the country falls further behind, not the more progressive nations to the West and East, but even Kenya, Rwanda, Tanzania and Uganda.

Colleague Hilton Tarrant and I discuss this and related issues in this week's Boardroom Talk podcast. Take a listen (or read the transcript) at http://tinyurl.com/kwvhvs. We need to up the level of the conversation. In the National Interest.

Until next week,

Best,

Alec

Why Telecoms Expense Management fails or succeeds

I found this summary on “Telecoms Expense Management” [TEM] – written by Anthony Cone from Tangoe Inc. in New York to be succinct.

For more on his public profile see http://www.linkedin.com/pub/anthony-cone/4/80a/a86.

How TEM solutions succeed?

There's a lot of great TEM success stories out there. But why did they succeed? Was it the process, the technology, the people a procure-to-pay solution?

1. Mutually agreed upon expectations from the beginning of the project
2. Clear goals and objectives
3. Requirements defined
4. Clear ownership of tasks & deliverables
5. TEM augmented by audit and sourcing at beginning
6. Unified solution for Fixed / Wireless for Admin and end-user?

Why TEM solutions fail?

Whether we like to admit it or not somewhere along the way we've seen failed TEM relationships. What are some of the root causes of this?

1. Under management of time and resources
2. No designated project manager from both the vendor and customer
3. Vague goals and objectives
4. Poorly defined requirements
5. Underestimated complexity
6. Lack of ownership
7. Vendor "bought" the business and is trying to recover margin