Telkom CEO warns MTN and Vodacom to stop hurting SA

March 3rd, 2014, Published in Articles: EE Publishers, Articles: EngineerIT, Featured: EE Publishers


by Hans van de Groenedaal, features editor, EngineerIT

In an open letter published in the weekend media, Telkom CEO Sipho Maseko urged MTN and Vodacom to stop hurting South Africa. This follows legal action by Vodacom and Cell after ICASA published new call termination rates which will favour Telkom Mobile and Cell C.

The two companies’ announcement of legal action against ICASA has irritated  many South Africans who have taken to Twitter and radio talk shows to demonstrate their dissatisfaction with the high cost of telecommunications in South Africa. They support ICASA in efforts to lower the cost of communication.

The 2014 call termination regulations will see mobile termination rates (MTR) reduced from the current R0,40 per minute to R0,10 per minute over the next three years.

These new call termination rates will result in significant asymmetry, up from the current 10% to 120% from March 2014, to 180% from March 2015, and to 300% from March 2016, which will benefit the newer mobile operations of Telkom and Cell C, but will cost Vodacom and MTN hundreds of millions of rands in lost revenue.

In his letter, Sipho  Maseko says that  in 1994 mobile termination rates were introduced as a way for Telkom to subsidise MTN and Vodacom to build their networks. To achieve this, as the incumbent fixed line operator, Telkom had to pay MTN and Vodacom significantly higher call termination rates compared to what MTN and Vodacom paid Telkom for the same service. This had the result that Telkom contributed over R50-billion to subsidise the establishment and operations of the two cellphone giants.

Both Vodacom and MTN claim that the proposed call termination rates and associated loss of revenue will impede their investment in new infrastructure. Sipho  Maseko  disputes this. He says in his letter that “despite your recent claims, history has shown that lowering the mobile termination rates has not stopped your capital investment, nor your return to shareholders. In fact, in 2012 Vodacom shareholders were paid R12-billion in dividends, while MTN paid almost R15-billion to its shareholders.

Over the past few days, some commentators  have suggested that the legal actions by Vodacom and MTN will hit ICASA hard, as the regulator  is under-resourced and will now have to spend its limited funds and capacity defending its regulations and decisions in court against two companies that have unlimited funds and resources to hire the best legal teams. To some, this does not seem to be in the best interest of South Africa.

Telkom is suggesting that by standing in the way of lower mobile termination rates, Vodacom and MTN are standing in the way of SA’s economic future. Cell C has further suggested in radio advertisements that customers who remain with MTN and Vodacom, and continue pay their higher voice and data rates, are in fact funding the legal batttle by MTN and Vodacom to keep the cost of mobile telecommunications high.

Are MTN and Vodacom’s cries of losses of revenue and profit valid? Or do Telkom and Cell C have a point? And could this time-wasting legal  dispute, that will serve to delay the introduction of lower costs of mobile telecommunications, not be settled out of court?

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