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Vodacom, MTN issue warning on termination rate ruling

Mobile operators MTN and Vodacom appear to be threatening legal action over the Independent Communications Authority of South Africa's (Icasa) decision to increase the termination rate they should pay to smaller rivals.
Connection rates to connect to networks owned by rival operators have been cut by Icasa. Image: Wiki Images
The two have previously warned that aggressive cuts could lead to job losses and a reduction in capital expenditure.

Termination rates‚ which will fall by 50% to 20c a minute in March‚ are fees that mobile operators pay to carry each other's calls.

However‚ MTN and Vodacom will pay their smaller rivals more than double the normal rate‚ according to the asymmetric termination rate. In draft regulations published last year‚ Icasa proposed an asymmetric rate of 39c/minute‚ but that was raised to 44c/minute.

Communications Minister Yunus Carrim has pleaded with the operators to accept the regulations‚ which are expected to help make calls cheaper.

High termination rates are seen as a barrier to small and new entrants being able to compete effectively on price because they have fewer customers‚ and most of their customers' calls are made to other networks‚ which results in them paying more in termination fees to the bigger operators.

Extensive consultation

Carrim said Icasa consulted extensively with all the parties.

"What some of them may lose in immediate profits will be exceeded by what they will gain in the medium- and long-term‚" he said.

Yunus Carrim says the regulations will benefit consumers. Image: GCIS
Vodacom‚ South Africa's biggest operator‚ is expected to lose the most as it is the largest net receiver of interconnection fees.

Both MTN and Vodacom have said that they were not opposed to the cuts‚ but they should be done responsibly. Vodacom said the asymmetric rate was more aggressive and unjustified‚ and a subsidy for the smaller operators.

Both Vodacom's chief executive, Shameel Joosub and MTN SA's chief executive Zunaid Bulbulia said that they were considering their options‚ which may point to the two companies contemplating legal action against Icasa's decision.

Bulbulia said new termination rates were a substantial departure from the 2010 rules‚ which set an important regulatory precedent regarding matters such as a gradual reduction in fees over time.

The pricing relief will not be immediate as the lower termination rates will decline gradually over three years.

Icasa said that while the asymmetric rate was high‚ it was intended to provide a "conducive environment" for smaller operators to invest in infrastructure.

Next year‚ the rate will fall to 15c/minute‚ and in 2016 it will be 10c/minute. The asymmetric termination rate will be 42c/minute next year‚ 40c/minute in 2016 and 20c/minute in 2017.

Old Mutual Investment Group's Electus telecommunications analyst Greg Cort said the direct effect on Vodacom and MTN was not that significant‚ perhaps a few hundred million rand a year.

"However‚ the biggest impact could come should Vodacom and MTN have to drop their prices in response to increased competition‚ resetting their significant voice revenue bases‚" he said.

Telkom‚ which is set to gain the most‚ said the reduction would substantially contribute to reducing the cost of communication and the consumer would be the beneficiary.

Cell C's acting chief executive Jose dos Santos said the company was confident that it can drive access to more affordable communications.


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