Cell Phone Interconnection Rates: it’s not our call
The Minister of Communications, Siphiwe Nyanda, is eager to paint as a victory the agreement reached with the three major South African cell phone operators to drop peak interconnection rates by 39c and leave off-peak rates unchanged. No doubt there is some political traction to be gained by claiming that this planned decrease – which will only take effect in February and March 2010 – constitutes “a big early Christmas and Easter present” for the people of South Africa, and will, as the Minister claims, “put[ting] money back in the pockets of ordinary South Africans”.
The reality, however, as Lloyd Gedye argues, is that this rate is the result of talks in which mobile networks have, understandably, sought to negotiate the best possible deal for themselves, rather than to bring interconnection down to a cost-based rate. Telecoms operators are business-people, whose natural objectives are to maximise profit and drive expansion. It has never been their responsibility to see to it that their pricing regime is as fair as possible towards telecoms consumers – that is the job of the independent regulator, which has thus far failed spectacularly to carry out this crucial aspect of its mandate.
If the generally-accepted consensus amongst experts and smaller players in the industry – that the true cost of connecting callers between networks cannot be more than about 20c per minute – is true, then the Minister’s planned reduction to a “blended interconnection rate” of 77c is indeed “cosmetic”, as Cell C CEO Lars Reichelt once described Vodacom’s proposal of a 78c blended rate.
But this is not a decision which can or must be made by politicians; nor should we, as politicians, succumb to the temptation to brand this a war between “the goodies” (the South African consumer), and “the baddies” (the big mobile and fixed-line phone operators). Rather, we must ensure that the state institutions whose collective responsibility it is to ensure that consumers get a fair deal in this sector do their jobs swiftly and effectively.
One month ago, Parliament concluded its public hearings into the plausibility, or not, of mobile operators in South Africa reducing interconnection fees (the fee charged by operators for allowing calls from other networks to be terminated on their own) from the current R1.25 per minute, to 60c per minute.
Speculation was rife from the outset – much of it perfectly valid – as to the purpose of these hearings: was the National Assembly assuming responsibility for the regulation of termination rates – a responsibility which falls squarely on the shoulders of ICASA? Or was the Portfolio Committee on Communications, which hosted the hearings, attempting to usurp the functions of its corresponding Department by directing telecommunications policy?
The truth – and indeed the reason that the Democratic Alliance (DA) MPs on the committee agreed to support the holding of these hearings – is simpler and less sinister than either of these: we wanted to offer the South African public, and the industry players who stood to be affected by any regulatory changes to the interconnect rate, an opportunity to come to Parliament and make representations about whether the proposed rate is realistic, too high, or indeed too low; to reflect on how the high cost of telephony in South Africa (and the cost is indeed high – objective benchmarking studies comparing South Africa to its peer group countries have shown this) has affected members of the public, their families and their businesses; and to afford both the major industry players and smaller license-holders, who are eager for a fair shake at breaking into the telecoms market, the chance to reflect on how changes of this nature might affect their businesses and the sector as a whole.
Interconnection rates are necessarily monopolistic because, for example, only Vodacom can terminate a call from another network operator to a Vodacom phone, and likewise only Cell C can terminate a call to a Cell C customer from a Telkom phone. This is why the effective regulation of interconnection rates is essential to stimulate competition in the sector, since high interconnection rates create a disincentive for users on a major network to move to a smaller, emerging one, no matter how low the small network prices its tariffs. The dynamics of market share (two networks being significantly bigger than the rest) mean that most calls from the smaller networks will be made to the bigger networks (unlike big network customers, whose calls will more often remain “on-net”), resulting in a punitive cost to those who choose to switch to a smaller network. In addition, a standardised interconnection rate of R1.25 limits the scope for competitive pricing by smaller networks, creating a further disincentive for consumers to try alternative carriers, which stifles competition in the sector.
The parliamentary hearings were heated and emotional from the start, with consumer and civil interest groups such as Highway Africa and the Unemployed People’s Movement making the case for drastic cuts on the basis that the high cost of communicating eats into as much as 30% of the household income of ordinary South Africans.
From The Business Place, an SMME support network, and Thabiso Mokgoro, a businessman and member of the public who made his written submission in a lucid, one page e-mail, we heard that unintelligible tariff pricing structures, indifferent customer service, and exorbitant prepaid tariffs during peak hours (most small business opt for prepaid rather than contract cell phones, as the risks of seeing their businesses blacklisted for spiralling cell phone bills are much too high) are a massive hindrance to their ability to operate effectively.
Everybody who participated in the hearings – including the major operators – did so entirely voluntarily, and on the basis of written submissions which they submitted to the parliamentary committee earlier in the month. While the temptation towards outrage and the demonization of cell phone operators in this context was great – and indeed committee MPs spared none of their fire in demanding that the big operators account for their high tariffs – the reality remains that it is not Parliament’s responsibility to regulate and/or dictate the price of interconnection; that is the function of the communications regulator.
In their submission during the hearings, senior executives from the second fixed-line operator, Neotel, rightly argued that the regulation of interconnection must be pursuant to a clearly-defined process. They also urged that the industry be provided with some clarity as to the effect of the multiple processes which the public outcry over this matter has spurred the government, Parliament, and ICASA to undertake in order to reduce mobile termination rates. Other industry players – particularly the smaller operators and new entrants – urged Parliament to engage with the full spectrum of problems inhibiting the liberalisation of the telecoms sector – instead of focusing only on interconnection, which cannot alone stimulate competition in the sector.
If there is a single lesson that MPs learned during the parliamentary hearings, it is that interconnection is not a panacea that will solve the problem of high telecoms pricing in South Africa – as has been suggested by some politicians, who have welcomed this so-called “Christmas bonus” for the South African people. We will only see long-term, sustainable benefits to the South African consumer if we adhere to and carry out our respective mandates:
The Department of Communications must draft and gazette comprehensive communications policies – not issue sexy, quick-fire, but very likely unenforceable Ministerial Policy Directives to the regulator; ICASA must regulate – and not allow in-fighting and fear of litigation to paralyse its attempts to carry out its mandate; and Parliament must legislate and provide effective oversight over both – and not confuse the public or spook the industry by appearing to want to usurp the roles of the regulator and the Communications Minister.