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Port Elizabeth - A fierce legal and commercial battle is brewing between cellular companies and the Independent Communications Authority of SA (Icasa).
At this stage it seems everybody is gunning the two giants in the industry, Vodacom [JSE:VOD] and MTN [JSE:MTN], over so-called termination fees.
Telkom [JSE:TKG] CEO Sipho Maseko has taken full-page advertisements in Sunday papers to publish an open letter to the bosses of MTN and Vodacom. In the letter he accuses MTN and Vodacom of hiding behind regulations to protect their profits, rather than lowering costs to cellphone users.
“In 1994, mobile termination rates were introduced as a way for Telkom to subsidise MTN and Vodacom to build your networks.
"The extent to which Telkom subsidised MTN and Vodacom has amounted to R50bn, which results from the disparity between the high cost of mobile termination rates that we pay you and the low rate that you pay us when you use the same service on Telkom's fixed-line network,” said Maseko in his letter.
"In this way Telkom has subsidised your business for over 2 decades," he alleged. “With Vodacom and MTN standing in the way of lowering mobile termination rates, I believe you are standing in the way of SA's future.”
A week ago, Cell C also booked full-page advertisements in the Sunday papers. The company published an extract from court documents in which MTN is applying for a court interdict to stop Icasa from reducing termination fees. “Doesn’t this just make you angry?” shouted the headline.
The published extract from the urgent application to the high court in which MTN tries to prevent the introduction of lower termination rates reads: “Both Cell C and Telkom have announced they will use the new asymmetry regime to reduce their retail pricing.
“If Cell C and Telkom Mobile were to reduce their retail prices during the period before the review is determined, it would cause a permanent change to the market that would be irreversible even if the review were to succeed. Only the grant of the interim relief could prevent this change to the market structure,” said MTN.
Vodacom has started similar court proceedings against Icasa and against cheaper call rates.
The termination fee in question is the fee cellular users pay when making a call from one network to another, for example the fee when the call terminates from the MTN network and goes onto Telkom’s fixed-line network or to another cellular network.
Icasa wants to reduce these termination rates between cellular companies from the current 40 cents to 20c. For fixed lines, call rates will drop to 12c for short distance calls and 16c for long distance.
The new rates were supposed to come into effect from March 1, but Icasa delayed commencement until May 1 after Vodacom and MTN got their knickers in a knot.
Vodacom and MTN take issue with the regulator’s plan to introduce different rates for different players in the industry. Icasa proposes that the smaller players – basically Cell C and Telkom’s 8ta – should pay lower termination rates when their calls jump to the bigger networks.
The bigger networks need to pay more to the smaller players. The intention of the differential rates is to give the smaller guys an advantage to build capacity.
This means bigger operators would pay 44c a minute to carry calls to smaller operators, while smaller operators would pay 20c a minute to their bigger rivals.
Maybe Icasa should investigate the effect on the market and cellular companies’ profits if it terminates termination fees completely. After all, calls jump from one network to the other the whole time and money moves to and from between them.
While cellular call rates in SA are very high, cellular companies make obscene profits.
Vodacom earned profit after tax of more than R13.2bn in its last financial year to March 2013. MTN will announce its results for the year to end-December 2013 this week, with earnings after tax expected to be around R30bn.
- Fin24
At this stage it seems everybody is gunning the two giants in the industry, Vodacom [JSE:VOD] and MTN [JSE:MTN], over so-called termination fees.
Telkom [JSE:TKG] CEO Sipho Maseko has taken full-page advertisements in Sunday papers to publish an open letter to the bosses of MTN and Vodacom. In the letter he accuses MTN and Vodacom of hiding behind regulations to protect their profits, rather than lowering costs to cellphone users.
“In 1994, mobile termination rates were introduced as a way for Telkom to subsidise MTN and Vodacom to build your networks.
"The extent to which Telkom subsidised MTN and Vodacom has amounted to R50bn, which results from the disparity between the high cost of mobile termination rates that we pay you and the low rate that you pay us when you use the same service on Telkom's fixed-line network,” said Maseko in his letter.
"In this way Telkom has subsidised your business for over 2 decades," he alleged. “With Vodacom and MTN standing in the way of lowering mobile termination rates, I believe you are standing in the way of SA's future.”
A week ago, Cell C also booked full-page advertisements in the Sunday papers. The company published an extract from court documents in which MTN is applying for a court interdict to stop Icasa from reducing termination fees. “Doesn’t this just make you angry?” shouted the headline.
The published extract from the urgent application to the high court in which MTN tries to prevent the introduction of lower termination rates reads: “Both Cell C and Telkom have announced they will use the new asymmetry regime to reduce their retail pricing.
“If Cell C and Telkom Mobile were to reduce their retail prices during the period before the review is determined, it would cause a permanent change to the market that would be irreversible even if the review were to succeed. Only the grant of the interim relief could prevent this change to the market structure,” said MTN.
Vodacom has started similar court proceedings against Icasa and against cheaper call rates.
The termination fee in question is the fee cellular users pay when making a call from one network to another, for example the fee when the call terminates from the MTN network and goes onto Telkom’s fixed-line network or to another cellular network.
Icasa wants to reduce these termination rates between cellular companies from the current 40 cents to 20c. For fixed lines, call rates will drop to 12c for short distance calls and 16c for long distance.
The new rates were supposed to come into effect from March 1, but Icasa delayed commencement until May 1 after Vodacom and MTN got their knickers in a knot.
Vodacom and MTN take issue with the regulator’s plan to introduce different rates for different players in the industry. Icasa proposes that the smaller players – basically Cell C and Telkom’s 8ta – should pay lower termination rates when their calls jump to the bigger networks.
The bigger networks need to pay more to the smaller players. The intention of the differential rates is to give the smaller guys an advantage to build capacity.
This means bigger operators would pay 44c a minute to carry calls to smaller operators, while smaller operators would pay 20c a minute to their bigger rivals.
Maybe Icasa should investigate the effect on the market and cellular companies’ profits if it terminates termination fees completely. After all, calls jump from one network to the other the whole time and money moves to and from between them.
While cellular call rates in SA are very high, cellular companies make obscene profits.
Vodacom earned profit after tax of more than R13.2bn in its last financial year to March 2013. MTN will announce its results for the year to end-December 2013 this week, with earnings after tax expected to be around R30bn.
- Fin24
