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Icasa’s proposed MTR cuts a step in the right direction – Cell C

Cell C CEO Alan Knott-Craig

Cell C CEO Alan Knott-Craig

Photo by Duane Daws

7th October 2013

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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The Independent Communications Authority of South Africa’s (Icasa’s) move to cut mobile termination rates (MTRs) to 10c by 2016 and align asymmetry rates by 2019 were the first in a series of required regulatory steps in normalising the South African telecommunications space, Cell C CEO Alan Knott-Craig said on Monday.

The former Vodacom CEO had been pursuing further cuts in the MTRs since assuming his role as head of South Africa’s third-largest mobile operator last year.

While Knott-Craig lauded the quick and efficient work of Icasa, which he believed favoured “neither friend nor foe”, he noted that there was much more to come and that the competition was going to be fierce.

Vodacom Group CEO Shameel Joosub believed, however, that the reduction and glide path was “too steep”, particularly the initial cut of 50% in 2014, saying this could have “serious negative impacts” on the business of Vodacom, as well as that of its suppliers, franchisees and other stakeholders.

Icasa tabled draft Call Termination Regulations that would, if implemented, see a steady decrease in MTRs, from the current 40c a minute, to 20c and 15c by March 2014 and 2015 respectively, culminating in an MTR of 10c by March 2016.

However, Icasa proposed that smaller operators with less than 20% market share, such as Cell C and Telkom Mobile, would be able to charge dominant players, such as MTN and Vodacom, an asymmetric rate of 44c until March 2014, when they would be required to reduce their fees to 39c.

The five-year asymmetric glide path stipulates further decreases to 33c in March 2015, 26c in March 2016, 20c in March 2017 and 14c in March 2018, before aligning to the final MTR of 10c.

“Given the importance of investment in infrastructure in ensuring the achievement of sufficient scale and the differences in traffic volumes that exist, the authority believes it necessary to sustain and increase asymmetry for a further period of five years,” the regulator commented on Friday, when announcing the new rates.

Icasa’s lowering of the asymmetry rate over a longer period was “smart”, said Knott-Craig, despite Cell C’s hopes of higher rates for smaller operators.

Vodacom and MTN controlled more than 80% of the mobile market revenue.

Knott-Craig stated that the new rates had “blasted the way open” by drastically reducing the single largest cost factor in prices – the MTR.

Vodacom, however, disagreed with the levels of asymmetry suggested, with Joosub saying that the proposed changes take the current rate of asymmetry from a 10% differential, to rates ranging between 95% and 160% over three years.

“The accepted practice worldwide is declining asymmetry for a limited period for new entrants at a fraction of the levels proposed,” he explained, adding that the company “sees this proposed asymmetry as placing Vodacom, and by extension, our customers, in the position of effectively subsidising our competitors.”

He previously warned that, while MTR cuts were one of the many competitive measures to be used to boost subscriber numbers and revenue, on the back of reduced margins, the benefits of a low MTR might not be passed on to the consumer.

MTR’s were previously said to be a source of revenue generation that was redirected to the maintenance, expansion and establishment of operators’ networks, which boosted the ability to produce higher coverage, quality and reliable networks and technology development capacity.

MTN, however, continued to review the draft regulations and planned to comment at a later stage.

“MTN will closely examine the contents of the proposed regulations and analyse its potential regulatory and economic impact,” said MTN SA acting chief corporate service officer Fusi Mokoena.

MTN had also previously slammed the lowering of the cuts, which, in addition to the company’s “slow response” to the price wars in the sector, had negatively impacted its half-year results in its South African market.

Vodacom and MTN recorded a 6% and 3% decline in share price to R116 and R193 a share respectively by Monday afternoon.

“Of all the players, Telkom wins hands down. And I do not begrudge them that. They have played a major role in establishing the current healthy mobile industry,” Knott-Craig added, citing the unchanged fixed-line termination rates.

Wholesale voice call termination rates to a fixed location would be charged at 12c a minute within 0N, or geographical area codes, and 19c a minute between 0N area codes, with no distinction between on- or off peak calls.

However, Telkom believed that all the current termination rates were “prejudicial” to the JSE-listed group, which had welcomed the review of the termination rate draft regulations.

“The company will, therefore, analyse the draft regulations that were published and pronounce on the proposed regulation at an appropriate time. Telkom will also participate in the process through submitting its comments to Icasa,” the group said in an emailed statement.

Telkom’s share price had risen over 5% by Monday afternoon, to R26.50.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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