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Johannesburg – Cellular operator Vodacom Group [JSE:VOD] is up in arms about recent reports that it threatened legal action against the Independent Communications Authority of South Africa (Icasa) over the lowering of mobile termination rates (MTR).
Vodacom says that it has done no such thing and is in favour of the reductions - its only problem is with the timing of their implementation.
These interconnect rates, which are paid by telecommunications providers for carrying calls on each other's behalf, were reduced by Icasa in March 2010 and are set for further lowering between now and 2012. The reductions are designed to bring down prices for South African consumers.
Bull and savings
Vodacom South Africa MD Shameel Joosub said his company believes that it should be given more time to adjust its operations before further reductions are introduced. Icasa has proposed a gradual reduction of rates implemented in July 2010, July 2011 and a final reduction in July 2012.
"We do not believe that the final MTR of 40c is unreasonable," he said.
"Our only concern is with the timing and structure of reductions. The first reduction was made in March 2010 and we [Vodacom] have asked for more time before the next. July is too soon. We have requested that it be extended to March 2011."
Joosub says that the March 2010 reduction has had a significant impact on his company's bottom line and has forced it to make adjustments to its business, including cutting costs. This has also impacted its distribution channel.
"We need time before the next cut and we're asking for eight months," he said.
As for legally challenging the reduction of interconnect rates, Joosub said this was never Vodacom's intention.
"We did not threaten legal action. In fact, the presentation we delivered this week was well received by Icasa. What we did say, however, is that the process of implementation must stand up to legal scrutiny and the regulator [Icasa] must be aware that there are current concerns from a legal perspective. Vodacom does not plan to do anything about these, but someone else might," he said.
Joosub said the industry needs considerable planning to adjust to rate reductions, and there must therefore be certainty about the process. Legal proceedings would upset the apple cart.
He added that Vodacom's strategy is to reduce prices for consumers irrespective of interconnect rates, and it has already done so recently by reducing rates by 8% in 2009. Rates for prepaid and data customers were lowered in May 2010.
Have MTR, will sue
Will Hahn, a senior analyst at the international ICT research and consulting firm Gartner, said South Africa is going about the reduction of interconnect rates from the wrong angle. He also doubts that Vodacom would refrain from legal action.
"I'd bet that Vodacom does go to court whether this is worked out or not," he said.
"The idea that they wouldn't sue is pretty thin. We've seen this happen elsewhere - the regulator makes a move like this and the operators sue. That's just what happens."
According to Hahn, South Africa faces several telecommunications challenges including interconnect reductions, local loop unbundling and others, but has not yet done the ground work required to meet these challenges successfully.
"SA is trying to get to the end without doing the work in the middle," he said.
"Without having a published cost model to use as a basis for rates it is impossible to decisively set interconnect or go about solving other challenges. Trying to do so without a model is unprecedented," said Hahn.
He explained that in other countries regulators first conduct studies to establish the true costs involved in telecommunications. They ask operators to confirm the findings, publish them publicly, and then use these models as a basis for reductions or to set rates.
"These are incredibly complicated models, but what they do is establish the basis for what it really costs to make a call or transfer data over the internet in a country. Once these base costs are agreed upon, there is little room for argument," he said.
But in South Africa, no such study has taken place and it is difficult to establish what the true costs for companies like Vodacom and MTN Group [JSE:MTN] are.
"These studies take time, which is a problem, but it has to be done," said Hahn.
"And from what I understand this kind of study is under way in SA, but Icasa wants to jump ahead and accomplish this worthy, noble goal of bringing down prices as quickly as possible. Problem is they've got a foot of sand on this thing - not a solid foundation," he said.
He said that where these studies have taken place before, they have set the stage for much debate, but that once the smoke clears there is always agreement.
"It gives the operators a level of confidence with which to proceed," said Hahn.
"They can say 'we don't like it', but at least they have the confidence to move forward."
- Fin24.com
