Cell cost cuts 'ill-considered'

Cape Town - An arbitrary and ill-considered intervention to reduce cellphone interconnection rates could have unintended consequences, the National Assembly's communications committee heard on Tuesday.

This could result in the disconnection of marginal cellphone customers who made up at least 30% of the customer base, a Vodacom delegation led by CEO Pieter Uys said in its presentation to the committee.

The committee is holding public hearings on what it says is the excessive and exorbitant costs of mobile termination rates (MTR) in the industry.

The MTR is the fee one network charges another for terminating or completing calls on its network.

Vodacom said the cellphone operators had to a great degree been successful in achieving public policy objectives aimed at increasing access to communications services in South Africa. Vodacom acknowledged that maybe the time had now arrived for all role players to review the MTR regime.

Operators had resolved to embark on an industry-led commercial process to reduce MTRs - a process which would be overseen by the Independent Communications Authority of SA (Icasa).

Vodacom firmly believed Icasa was mandated and best positioned by the relevant legislation to determine MTRs by following the prescribed process.

There was no reason why Icasa should not be able to finalise the regulations without undue delay to enable them to conduct the required market review and ensure any findings of market failure would be addressed appropriately.

As Icasa had not yet conducted a market study which would involve a comprehensive cost modelling, the cost information submitted in the regulatory financial statements was the only accurate and reliable cost information available to Icasa. It should therefore be used to inform the current commercial rate review debate.

A dramatic reduction of charges was likely to have a negative impact on government policy objectives of universal access and would be disruptive to the economy and communications industry.

Vodacom reiterated the concerns raised by the Competition Commission, that any regulatory intervention in mobile call termination rate settings should be undertaken with a great degree of caution.

This was because it could result in higher access charges, less discounts for on-net calls, higher SMS and data charges, and increased retail voice charges for prepaid customers.

Regarding the committee's statement that interconnection rates of R1.25 a minute during peak times were exorbitant and excessive, Vodacom said MTRs were agreed via commercial negotiations between affected operators and Icasa guidelines. Further, Icasa had approved all proposed MTR adjustments.

While MTRs might be arguably high, sight should not be lost of the levels of telephony penetration, and lately radio-based broadband, that SA - compared to peer markets with significantly lower MTRs - had achieved over the past decade.

Countries that had achieved high mobile penetration levels tended to have very minimal costs of ownership, resulting in barriers affecting access to communications services being removed.

These barriers included handset costs, pervasive network coverage, SIM card costs and connection fees. South Africa's benign MTR regime had been one of the instruments that had allowed the mobile phone industry to significantly eliminate cost of ownership as a barrier to access. Moreover, this regime had also made it possible for mobile operators to maintain on their networks marginal subscribers who barely made calls. The cost of providing a base station in rural areas was generally much higher compared to the equivalent in a city or town. Mobile customers in rural areas tended to receive many more calls than they made, meaning cost recovery for rural base stations roll-out was highly dependent on MTR revenue.

Generally, access to mobile communication services by marginal subscribers was at risk as a result of the reduction in MTRs. Where such subscribers would be accommodated on the network for some time, operators might not afford to keep connected subscribers who did not make calls if the reduction of MTRs was drastic and abrupt, Vodacom said.

- Sapa