Vodacom to fight plans to cut South African mobile pricing

The country's largest operator says the introduction of asymmetric termination fees will mean it's "effectively subsidising competitors".
Written by Adam Oxford, Contributor

The Independent Communications Authority of South Africa (ICASA) has published a new draft policy for mobile termination rates, which will see smaller operators paying less to connect customers' calls to rival networks than the two biggest players in the market. The country's largest operator, Vodacom, has said that it will contest the proposals during the public discussion phase of the policy's implementation.

The draft regulations will see the maximum price a network can charge for connecting a call from a different operator reduced from its current price of 40 South African cents ($0.04) to 10 cents ($0.01) over a three-year period, with an initial drop of 50 percent in March 2014. The cost has been steadily reduced since March 2011, when it was 73 cents ($0.07) per call.

As part of the announcement, ICASA also plans to introduce a second, asymmetrical fee scale which can be charged by smaller network operators. This will start at 44 cents ($0.04) and reduce to the same 10 cent level over a longer six-year period.

ICASA has long held that high termination rates were hindering competition in the mobile market. According to figures from the GSMA, mobile penetration levels in South Africa are around 123 percent, yet the country was ranked 117th out of 140 countries for mobile tariff pricing in a recent report by the World Economic Forum.

In a statement accompanying its draft report, ICASA said: "The market remains ineffective with extremely high levels of concentration, where the market for termination to a mobile location and the market for termination to fixed and mobile locations have a Herfindahl-Hirschman Index of greater than 4000, where 1800 is the estimated highest value before a market exhibits ineffective competition."

Two operators, Vodacom and MTN, dominate the mobile market in the country, accounting for around 90 percent of total revenue. There are two other operators with their own infrastructure, Cell C — which has long lobbied for asymmetrical mobile termination rates — and Telkom, which sold its 15 percent stake in Vodacom in 2009 in order to build its own mobile network. Effectively, it's Telkom and Cell C that will benefit from the new termination rate plans.

Cell C's CEO, Alan Knott-Craig, said that he was initially disappointed that the asymmetrical charges weren't as generous to smaller operators as he'd hoped for, he welcomed ICASA's proposed new tariff.

"It has blasted the way open by drastically reducing the single largest cost factor in prices, namely the MTR which both Vodacom and MTN enjoy," Knott-Craig said in a statement. "The market will be a more competitive and balanced one with ICASA's proposed draft regulations on termination rates as they have currently proposed them."

Vodacom's CEO Shameel Joosub was less enthusiastic about the proposals. His company will be presenting a case to extend the 'glide path' for reductions in MTR fees, as the initial drop is "too steep and could have serious negative impacts".

"We support ICASA's goal of reducing mobile termination rates, provided that such a reduction is cost-based," Joosub said in a statement. "Cuts in mobile termination rates can have a profound impact on both our business and those of our suppliers, franchisees and other stakeholders."

Regarding the introduction of asymmetric fees, Joosub said that the proposed fees were higher than international norms.

"We see this proposed asymmetry as placing Vodacom - and by extension, our customers - in the position of effectively subsidising our competitors," he said.

MTN declined to comment on the proposals.

Further reading

Editorial standards