Johannesburg - Consumers look set to be the ultimate winners when the telecommunications industry shifts to reflect new call termination regulations.
The proposed reductions in call termination rates in the draft regulations released last week are an inflection point for incumbents Vodacom and MTN, while encouraging smaller operators Cell C and Telkom Mobile to threaten aggressive cuts in retail prices.
The Independent Communications Authority of SA (Icasa) has proposed that interconnection rates be halved to 20c a minute by March next year. By 2016, this would drop to 10c. Interconnection rates are what operators charge to connect calls on each others’ networks.
This is the second three-phase plan introduced by Icasa. The first was implemented in 2010 and concluded this year.
Lower interconnection rates are expected to foster greater competition between operators and ultimately result in lower prices for consumers.
“South Africa will still be lagging behind international best practice. However, since the mobile termination rate will drop to 20c in March 2014 this is within acceptable boundaries,” Christoph Stork, a senior researcher at Research ICT Africa, said.
Market reaction yesterday showed that the proposed cuts were steeper than expected.
Vodacom stock shed the most in more than three months, falling nearly 7 percent in intraday trade to R115.60 on the JSE. It recovered slightly to close 6.26 percent down on the day at R116. MTN had its biggest decline since September 2 as it traded 3.79 percent lower at R191.55 by mid-afternoon before closing 3.06 percent down on the day at R193.
In comparison, shares in fixed-line services operator Telkom reached as high as R27.09 in intraday trade and closed the session 5.03 percent ahead at R26.50.
Stork said Telkom would “immediately benefit as the biggest net payer of termination rate payments. MTN and Vodacom’s net cash flow is likely to decline.”
Both had benefited from above-cost termination rates in the past but he expected these companies would adjust and compete effectively.
Greg Cort, an analyst at Electus, a boutique of Old Mutual Investment Group, said research showed Vodacom was charging its customers more than nine times the data (network) equivalent on voice calls.
Aslam Dalvi, an analyst at Kagiso Asset Management, said the extent to which Telkom would benefit would depend on how much of its savings were transferred to consumers.
Icasa has also proposed higher asymmetry rates, which would allow Cell C and Telkom Mobile to pay less to the larger operators to accept their calls. In return, the big competitors would pay more to connect to their smaller counterparts.
“The greater asymmetry paves the way for a potentially more competitive landscape with further tariff pressure,” Dalvi said.
Alan Knott-Craig, Cell C’s chief executive, welcomed the draft regulations, saying the market would be “more competitive and balanced”.
“There is much more to come, and the competition is going to be fierce. Cell C needs more market share, and we will only gain that through aggressive pricing and good network quality,” he said.
Vodacom supported the reduction provided it was cost-based but objected to the proposed asymmetry. “We see this proposed asymmetry as placing Vodacom (and by extension our customers) in the position of effectively subsidising our competitors,” chief executive Shameel Joosub said.
MTN and Telkom were studying the regulations and would provide detailed replies during the 14 days set aside for comment by Icasa. - Business Report