MTN and Cell C in Cheap Phones Dispute in South Africa

Telecoms

A multi-million rand dispute over the roll-out of cheap pay phones could see thousands of poor communities lose the ability to make cut-price calls to preserve the profits of MTN, the industry regulator has heard.

Cell C's 100,000 community service telephones (CSTs) had sparked a revolution by taking affordable telephony to SA's poorest citizens, its CEO, Jeffrey Hedberg, said last week. They had created jobs for the entrepreneurs who ran them and gave people the ability to contact their families and seek work, he said.

But the phones are under attack from MTN, which claims that Cell C is using them to boost its profits unfairly. Cell C charges the caller 90c a minute and pockets the profit. But MTN can charge an interconnection fee of only 6c a minute when someone uses a Cell C community phone to dial an MTN subscriber. The interconnection fee from a normal phone would cost Cell C R1.25 a minute. MTN claims that about 80% of Cell C's community phones are not in needy areas, so MTN is sacrificing its interconnection fee, yet Cell C still makes a profit.

Last week the rival operators gave evidence to the Independent Communications Authority of SA (Icasa), which must decide exactly what constitutes an under serviced area. Once the areas are defined, Icasa will assess whether Cell C's phones are correctly placed, possibly prompting the withdrawal of thousands of cut-price phones.

MTN's GM for legal and regulatory affairs, Graham de Vries, told Icasa that 81% of South Africa would be classified as under served if Cell C had its way. Yet the burden of the subsidy was born by MTN and not by Cell C itself, he said. Both are withholding cash from the other, with Cell C claiming MTN owes it R1bn and MTN saying it is owed R800m in unpaid interconnection fees.

How much each owes the other will be resolved only once Icasa decides which phones are incorrectly sited and should pay a commercial interconnection fee. Cell C has almost doubled the 52,000 phones it was obliged to install in poor areas as part of its licence obligations. Yet those efforts had not been welcomed by its rivals, Hedberg said.

"They have sought to penalise Cell C financially, not by competing with better prices but rather by competing in the courts." Nor was MTN really suffering from the lower fees, he said, as its profits continued to soar.

Icasa had to decide whether to bow to threats and litigation from a competitor trying to protect its bottom line or to support universal service, Hedberg said. "It can't be that the benefits to many through affordable and accessible services can be constrained for the profits of a few," he said. "Affordable telephony requires sacrifices from the incumbent operators. The greed of a few cannot constrain the opportunities for many."

Economist James Hodge told Icasa that every other effort to take affordable telecoms services to poor areas had failed, and CSTs were the sole success. Vodacom had responded by matching Cell C's roll- out, and MTN was finally following suit, benefiting communities across SA.

Business Day