Mobile phone Cost Briefings to Be Secret In South Africa

Telecoms

Parliament's communications committee has decided to call cellphone operators for confidential one-on-one briefings on their cost structures over the next few weeks in an endeavour to determine a realistic interconnection rate.

And there is a strong feeling among committee members -- endorsed by the Congress of South African Trade Unions -- that the entire pricing and cost structure of the mobile operators be analysed to make sure they do not try to recoup the lost revenue from the interconnection rate reduction in other areas of their business.

Both Vodacom and MTN have indicated their willingness to provide their commercially sensitive information to the committee, but only on a confidential basis. They have opposed the committee's proposal to reduce mobile termination rates immediately from a peak of R1,25c a minute to 60c, saying this was below cost.

Karel Pienaar, MD of MTN SA, told the committee its average interconnection cost was about 96c and it could work within a range of 10% below that. But he warned that drastic cuts that did not factor in SA's development needs would be a "business model shock".

Cell C CEO Lars Reichelt also said the 60c proposal was "too strong and not rooted in reality". He estimated the off-peak termination rate for the major players to be 77c, and proposed a flat 75c assymetrical termination rate from the start of the new year for Vodacom and MTN, and 65c for Cell C.

"We believe this proposal can potentially gain support from other players," Reichelt said.

Others have warned about the dangers of arbitrage if different termination rates are applied.

Both Vodacom and MTN have emphasised the need for a longer phase-in period for the reduction, saying they would have to change their business and investment plans. They said revenue from interconnection fees -- estimated at nearly R3bn for both operators -- had provided the funds for the investment in infrastructure and the achievement of SA's high penetration rate.

The mobile operators, together with Competition Commission commissioner Shan Ramburuth stressed the need for regulatory certainty and for the Independent Communications Authority of SA (Icasa) rather than Parliament to determine a defensible termination rate on the basis of a sound methodological analysis of costs.

Ramburuth warned that any figure arrived at arbitrarily would be subject to legal challenge. "We should not be guessing these figures," he told the committee.

However, committee chairman Ismail Vadi said that the committee needed to be armed with knowledge about the costs of interconnection so that it could assess whether Icasa had done its job properly when it decided, together with cellphone operators, on the size of the reduction in mobile termination rates.

Business Day