Telecoms revenue safe

Johannesburg - The pending reduction in interconnect rates levied by telecommunications companies for carrying calls on each other's behalf has met mixed reactions from the industry.

While some smaller telecoms companies applaud the move as it drives competitiveness in the market, others warn of potential government meddling and the negative impact a low rate could have.

This month major stakeholders in Telecoms, including Telkom, Neotel, MTN, Vodacom and the Internet Service Providers Associations (ISPA) met and agreed to negotiate surrounding the reduction of rates.

While some warned that a lowered rate would impact negatively on revenues, analysts said the effect will be minimal.

CEO of Vox Telecoms Doug Reed is one party warning that the reduction of Interconnect rates should be carefully planned and implemented as it could impact negatively on the market.

"I've always said that these rates must come down, just not in a knee-jerk way," said Reed.

He said government should actually not be involved in such affairs, but that it is and must be because the issues surrounding interconnect arose from government intervention - specifically that it was government who appointed two original cellular networks in the form of MTN and Vodacom, opening the door for anti-competitive Interconnect rates.

"The standard rate is about R1.65 and our interconnect rate for Vox is R1.07. A majority of corporate customers are now on similar rates to ours. Competition has already impacted on these rates and brought reductions, but the real threat of a reduced rate faces the lower end of the market," he said.

Reed said lower average revenue per user (Arpu) markets rely on revenue from incoming calls, as they do not make money from outgoing calls. The average prepaid user in South Africa cannot afford airtime to frequently make calls, but interconnect offers a way for networks to make money nonetheless, from levies on incoming calls.

According to Reed, if networks have no way of deriving revenue from incoming calls to prepaid numbers, they might be challenged in providing services to poorer customers.

"If they are going to regulate interconnect then it must be done properly to help competition," said Reed.

"We support the regulator 100% and think it should be empowered more. We need asymmetrical interconnect, unbundling of the local loop and other issues sorted out that rely on the regulator - but it must all happen in an orderly fashion. It's also not fair that government still has a vested interest in the matter via its shareholding in Telkom."

However, managing director of IT research and consulting agency World Wide Worx, Steven Ambrose said there is more to the interconnect debate.

"In the case of Cell C they pay far more than they receive, simply because they have 6 million lines and the other mobile operators have 45 million, as well as Telkom fixed lines of 4 million," said Ambrose.

"So cell C calls terminate off network far more than on network. Prepaid users already play massive arbitrage on their calls, they have multiple SIM cards to take advantage of on-network specials and price," he added.

But Ambrose said there is some truth in the suggestion that lower interconnect rates would impact on prepaid because many subscribers only use their Cell C number to receive calls.

Turning to the bigger providers, Ambrose said that reducing the interconnect will not have a material effect on Vodacom and MTN revenues or profits, but will give Cell C, Vox and other service provider a boost when most of their calls are off-network.

"The bottom line is that overall prices will not change much in the next six months to a year as our mobility research shows that people are very happy with their networks - over 80% satisfied, and note that this for the contract market not prepaid, he said.

"However, business and least cost routing providers such as Vox will need to relook at their business models to realign themselves with the new lower interconnect regime, and this over time will reduce the overall cost of telecommunication for all of us."

- Fin24.com