Mobile termination rates all at sea!

April 1st, 2014, Published in Articles: EE Publishers, Articles: EngineerIT

by Hans van de Groenendaal, features editor, EngineerIT

ICASA did not follow the rules… but the South Gauteng High Court has allowed lower asymmetrical mobile termination rates to be implemented for six months. Lower rates are in the public interest, says the judge!

ICASA judgement

On Monday 31 March 2014 the South Gauteng High Court ruled that new call termination regulations issued by the Independent Communications Authority of South Africa (ICASA) are “unlawful and invalid”. However, the declaration of invalidity has been suspended for six months, which means that the new call termination rates announced on 29 January 2014 became effective on Tuesday 1 April 2014.  ICASA has been given six months to review the regulations and warned to follow the rules.

Clearly ICASA and the industry will have to negotiate some high seas before the next round in six months time. In the interim Telkom Mobile and Cell C are smiling.

Under the court ruling, for the next six months  Cell C and Telkom Mobile will be charging Vodacom and MTN significantly more (44 cents) to terminate a call on their networks than Vodacom and MTN can charge them (20 cents).  Both MTN and Vodacom opposed the new regulations, arguing that Cell C should not have the benefits of asymmetry as it is not a new entrant, and that ICASA did not follow the correct process in determining the rates.

In a wise move to prevent the urgent interdict by MTN and Vodacom from being granted, ICASA announced that it would re-look at the call termination rate cuts set out in the regulations for 2015, 2016, and 2017, and published urgent amendments to the regulations in the Government Gazette which repealed all the rate cuts except the 20 cents /44 cents adjusted call termination rates for 2014. The judge was clearly not fazed by this move.

MTN told the court that the new mobile termination rates would cost the company R450-million in revenue if the new rates were implemented.  CEO Zunaid Bulbulia also warned that the rate cuts could lead to “Eskom-type” rolling network blackouts “because we just don’t have the free cash in our business”.

Was Zunaid using simply using fear tactics by claiming poverty? Is MTN that poor, and can MTN really afford to alienate customers with lower network availability and increasing numbers of dropped calls due to network congestion?

Vodacom used similar arguments when the company said that the new mobile termination rates would mean less money for Vodacom to invest in network upgrades and in bringing overall call costs down.

South Africans generally have the impression that MTN and Vodacom are extremely profitable companies, while over past year the public have increasingly complained about poor service in some areas and an increase in dropped calls. Can networks providers allow this to escalate? I would think not!

Commenting on the outcome of the high court verdict, Telkom said the company welcomes the South Gauteng High Court ruling on the mobile termination regulations and noted that the court has exercised its discretion in the interest of the public to allow the a mobile termination rate of 20 cents with an asymmetric rate of 44 cents to be implemented for the next six months, effective 1 April 2014. Telkom believes that the ruling is in the best interest of the industry and will go far in stimulating competition in the industry and reducing the cost of communications for consumers.

Cell C said in its court papers that if the urgent interdict by Vodacom and MTN  to block the new mobile termination rates was successful, it would have a devastating effect on the company. Without the benefit of increased asymmetry in mobile termination rates, Cell C said that its only real alternative would be to increase its retail rates in line with Vodacom’s and MTN’s prices. This ruling therefore means that Cell C has been granted a temporary reprieve, but depending on what form the revised regulations take, this could change in the next six months.

In his ruling, the judge said that a further consideration in exercising his discretion to suspend his declaration of invalidity of the mobile termination regulations for six months, is the fact that MTN and Vodacom are both very profitable companies who had motivated their applications almost exclusively through commercial considerations. The judge ruled that the potential loss of revenue has to be weighed against the likelihood of a price war triggered by Cell C and Telkom Mobile which would benefit the public if the amended 2014 regulations come into force, even for a limited period.

While the introduction of the new call termination regulations and rates was  unprocedural, it would seem that the judge believes that fundamentally they are in the public interest, and he is giving ICASA six months grace to do it right.

South Africa has a history of having the highest mobile rates in the world, so the two giants in the industry are getting little sympathy from users, while ICASA is scoring brownie points from the man in the street!

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