Telkom and Cell C have slammed the regulator’s decision to eliminate the higher call termination rate that they receive from their big rivals, saying it would be detrimental to their businesses.
Mobile network operators (MNOs) pay a fee to carry each other's calls but the present scheme of charges — which has been in force about 12 years — is asymmetric, meaning that Vodacom and MTN pay more to their smaller rivals in an arrangement that was meant to prop up the late entrants to the market.
The Independent Communications Authority of SA (Icasa) recently reviewed the system, known as the asymmetric mobile termination rate (AMTR), and decided to phase it out over the next 12 months — though it will still be implemented for new entrants to the mobile voice market for three years.
Neither Telkom nor Cell C spelt out what the affect would be on their financial performance, but Telkom said it believed ending the AMTR will be detrimental to the smaller operators and will benefit Vodacom and MTN.
“While the findings document has indicated that AMTRs should be phased out within the next 12 months, Icasa has indicated that cost-based pricing should be applied (including asymmetry) … the relative costs incurred by smaller and larger operators are likely to indicate that removing AMTR is unjustified,” Telkom said.
It added it “will consider its options once a cost study has been completed”.
This suggests Telkom may consider legal action against Icasa.
Zahir Williams, chief legal officer at Cell C, said AMTR has been a significant regulatory intervention to promote competition. “Cell C has noted Icasa's findings on its review of AMTRs and is assessing the business effect thereof, taking into account the challenges of smaller MNOs to effectively compete against large MNOs.”
Termination fees have been dropping over the past 10 years from as high as R1.25 for mobile voice calls in 2010 to 9c now, the rate paid to Vodacom and MTN by Cell C and Telkom. The smaller operators receive 13c from their bigger rivals.
The AMTR is one of the measures that Icasa introduced in a bid to level the playing field and help Telkom Mobile and Cell C gain market share.
The high level at which terminations rates were set was blamed for the exorbitant charges that consumers were subjected to previously. Since the reduction, consumers have experienced a decline in voice-call rates in some parts.
Traditional voice has progressively become a sideshow, thus continuing with the AMTR arrangement is no longer sufficient to address the issue of market dominance
— Ofentse Dazela, director of pricing research at Africa Analysis
The regulator is reviewing the rates with the possibility of further reducing them.
It has defended its decision to phase out the existing agreements, saying it has already granted small entrants asymmetry for 12 years, which is longer than the recommended international best practice of three to four years.
Telkom said in its written submission during Icasa's review that Vodacom and MTN still held a duopoly with a combined market share of 82% of mobile voice subscribers and an 88% share of mobile voice revenues, while Telkom and Cell C had yet to reach the minimum efficient scale to compete effectively.
“Removing the pro-competitive MTR asymmetry would have a detrimental and potentially irreversible affect on competition and investment, which would far outweigh any risk of short-term inefficiency,” it said.
While an AMTR scheme will be extended to new entrants, Icasa said it expects it to be of limited value to them because of the significant increase in data traffic and minimal growth in voice traffic. “The authority will consult on the appropriate level of asymmetry for new entrants during the cost-modelling process,” it said.
Ofentse Dazela, director of pricing research at Africa Analysis, said that in 2014 when call termination regulations were revised and voice was still dominant, the AMTR did assist small operators and provided a necessary financial boost. Now, however, its benefit had waned, though smaller operators would fight to retain the status quo and whatever additional revenue it brought them.
“Traditional voice has progressively become a sideshow, thus continuing with the AMTR arrangement is no longer sufficient to address the issue of market dominance which it was intended to address," Dazela said.
“Perhaps we need to start looking at other aspects of the value chain such as wholesale roaming agreements that MNOs have with smaller operators to ensure that they promote healthy competition and are also not a barrier to market entry.”
Dazela said he understands why Icasa still wants to support new entrants, but it “is not plausible that there could be a new player out there thinking of entering the traditional voice market as a key value proposition. Such a company will inevitably fail because voice has now become more of a value-adding service rather than a key revenue driver for today’s operator.”
It was for this reason that new market entrants such as Rain were positioning themselves as data service companies.
