Mozambique - TDM's MD Adriano wants a new interconnect agreement

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For most telecoms incumbents the interconnection agreement with other carriers is usually made on terms that they broadly find acceptable. But according to its Managing Director Salvador Adriano TDM finds itself in the unusual position of being at a complete disadvantage from this key agreement. It comes up for renegotiation shortly and Adriano would like to see it renegotiated more favourably to the incumbent. Russell Southwood interviewed him about this and other issues facing TDM as it enters a competitive era.

Give me the background to the interconnection dispute.

In 1981 the postal and telephone services were separated. In 1992 the regulator was established. In 1997 TDM started a mobile operation called TMM was started with Detecon. It’s now called M-Cell, In 1999 law 1499 almost fully opened the market with the exception of the fixed line. We lost the monopoly on the international gateway and the transmission backbone. In 2000 the regulator asked for two bidders for mobile licences but the market was too small to support two more licences and the regulator had to re-offer one licence. Vodacom bid USD15.05m and the licence was awarded in August 2002.

Negotiations over interconnection started shortly afterwards. The negotiations didn’t go as Vodacom expected and it went to the regulator who – after a mandatory period (20 days) when it acted unsuccessfully as arbitrator – ruled on the dispute. This ruling was made in December 2002 and was binding on both parties. It set a rate of 16.5 cents for calls terminated on mobiles and 6.5 cents for those terminated on fixed lines. At TDM we were not happy with this decision.

From your point of view, this was obviously not a favorable decision but why is it so harmful to you commercially?

Decree 47 in December 2003 separated out TDM and its mobile operation, M-Cell and created two separate companies. Vodacom started rolling out in mid-2003 and TDM had a period of time before it started where it put in place the interconnect arrangements with M-Cell and it was very clear the hit we were going to take even before Vodacom started in December 2003.

We need to have the interconnection agreement revised as it’s crucial if we’re to build a national backbone. Mobile services can be profitable without subsidy through interconnection tariffs.

What would you like to see?

I’d be happy with the Tanzanian model. So you get 9 cents for calls terminated on mobiles and 5 cents for calls terminated on fixed lines and every year this would go down until you reached a point where it was 6 cents for mobile and three cents for fixed. To put it in perspective, for every minute I get from the mobile operator I give them 12-14 minutes.

But M-Cell’s your subsidiary so don’t you end up with the money anyway?

Getting a dividend (minus 26% to the Government for its shareholding) takes longer and costs more than the interconnect which I get straight away. Not only that but I have to pay taxes on the dividends.

So I hope the regulator will reconsider. We’ve just resubmitted our “Reference Interconnection Offer” with a proposal for new tariffs and invited the mobile operators for negotiation.

What are the mobile operators saying to you privately?

They’re both saying the regulator decided and we don’t see any reason to change. But we have to discuss it with them. If we reach agreement, we submit a tariff. If not we go to arbitration and pray that this time any ruling will go our way. You don’t have to be an economist to see that something is wrong with the numbers.

How many subscribers does each operator have?

The maximum number of fixed lines we’ve had was 90,000 and it’s now gone down to 80,000. As at October 2004, M-Cell has 600,000 subscribers and Vodacom 150,000. Both of us are growing at the same pace and the total market is probably 2 million. Vodacom’s not yet got the same coverage as M-Cell and it’s betting on the rural areas for future growth.

Who owns M-Cell and TDM?

M-Cell’s 74% owned by TDM and 26% by the Government agency (IJEPE) that looks after Government shares in private institutions. TDM is 100% owned by the Government.

When will TDM be privatised?

First you need to know that the General Law says that when the company is privatised it has to reserve 20% of shares to be offered to the employees. They have to pay for this shareholding but that means the Government will sell 80%. But the Government has to decide how much of this 80% it wants to sell.

What’s the progress on the issue so far?

It’s up to the Government and it’s not yet announced its decision. PWC was hired in December 2002 to advise the Government but we have not heard from either the Government or the consultants what will happen.

Law 1499 specified that it must be privatised and more recently Law 8 in 2004 also mentioned it along with the fact that our exclusivity on fixed lines will expire in December 2007 when the Government has the right to open the market to further fixed operators.

Who will want to buy TDM?

It depends on whether TDM is sold by itself or together with the mobile operation. It might make a big difference to who comes forward or indeed if anyone comes forward at all. TDM’s advice to the Government is that we should go with M-Cell otherwise the process will be more difficult, especially as we have lost the exclusivity on the international gateway and the transmission backbone.

What’s the implication on the transmission backbone?

People can build infrastructure in competition with TDM. Vodacom and M-Cell can do it and they can then sell their extra capacity. However the country still needs a national backbone and TDM is committed to building it otherwise it will never be built.

What fibre infrastructure have you got?

A piece that connects the capital Maputo to the coastal town of Beira which is in turn connected to Zimbabwe by a microwave link.

How are you connected into South Africa?

Through a link with Telkom.

Isn’t there another fibre link to South Africa?

Yes, there’s a company called Motraco – a joint venture between Eskom and the power companies in Swaziland and Mozambique that has fibre on the power lines to the Mozal aluminium smelter in Maputo. But they haven’t got a licence yet. There also a gas pipeline laid by SASOL with an agreement to lay fibre from Inhambane to South Africa. In future we will have choices about who we connect to.

Is VoIP a big factor? Is there a grey market?

With all the changes we’ve had, we’ve concentrated on how TDM responds as a business when it no longer has a monopoly. The mobile operators have installed least-cost routing on their PABXs so we will need to address the market’s concerns, especially for corporate customers. More and more of our business comes from data and we can’t compete on voice (with the current interconnect agreement). Next year we will be launching ADSL.

We also have other new products including an intelligent network platform which will allow us to offer pre-paid on fixed lines. It’s already up-and-running and we’ll also be able to offer toll-free numbers and VPNs.

The third area we’re concentrating on is the national backbone. If TDM doesn’t do it, it’s not a paying proposition for the private sector. It’s important to provide the country with a national infrastructure and we’re talking to institutions like DBSA to obtain concession funding. If we succeed we will build a fibre network to connect every provincial capital.

But what about the grey market?

In Mozambique the law says that to be an ISP you need to register but if you want to be a data carrier you have to buy a licence. That’s where the problem starts. Any ISP can use VSAT and the internet to provide some kind of voice service. There’ve been cases where we’ve gone to the regulator and shown that ISPs are using VSAT terminals and terminating international traffic. But we’re not responsible for national policing on this issue and I don’t know how big it is. Those selling in the grey market don’t sell publicly. There are two markets: someone using a PC to make calls. That doesn’t really damage TDM’s business. It’s the terminations in volume via VSATs that causes us problems.

How much does the Government owe TDM?

On the one hand, most of our concessional loans have come via the Government. On the other hand, there are bills generated by Government offices. There’s some negotiating room for trading the two. One of the reasons for going pre-paid is that if we take the Government to Court over non-payment it takes too long to solve.

What’s happened to international prices?

Vodacom started bringing them down in December 2002. It came with lower international tariffs. M-Cell uses our international gateway and came out 2 days later with new tariffs that were 60% cheaper and it remains the best in the Mozambique market.

We were expecting to see an increase in traffic when the prices dropped but it’s not happened because of losses to (grey market) VoIP operators.

We need to roll out the backbone to increase fixed line customers. We’re conducting a trial of 45 CDMA/wireless points (see other CDMA news in Telecom News – In Brief below). We have a big waiting list for places where the access network won’t reach. These tests are both with Huawei and ZTE. It’s a new product and we don’t know much about it. It’s a short trial with both which is intended to shorten the time taken to launch the tender. We want not only to increase our customer base but also eliminate the waiting list in towns.

What’s the potential for fixed lines?

With the national backbone in place, somewhere between 300,000-400,000. Without the backbone, 150,000. If the interconnection agreement is corrected, the pace of fixed line growth will go up and there will be a greater price differential between fixed and mobile, which should be the case as you pay a premium for mobility.

Who are the fixed line customers?

With post-paid, its corporate customers who want things like fax and broadband. With the pre-paid, it’s low income families. The tariff is lower than mobile.