Johannesburg - Tomorrow is decision day when Vodacom and MTN hear whether their attempt, on an urgent basis, to block the industry regulator from halving call termination rates to 20 cents on Tuesday, was strong enough to convince the high court in their favour.
The regulator, the Independent Communications Authority of SA (Icasa) – the second respondent in the matter, is also on tenterhooks.
The outcome could go either way with the potential to lower the cost to call for consumers later down the line.
The fate of the call termination regulations lies at the discretion of Judge Haseena Mayat, who will deliver judgment at 3pm. Mayat’s recent high profile cases include the matter between ousted Athletics South Africa president James Evans and the five provincial boards that he tried to suspend last month.
In 2012, she sat for the matter of lawyer June Marks, who was ordered by court to pay back about R10 million to the troubled Cadac Fund from which former Fidentia boss and fraud accused J Arthur Brown had borrowed to pay Marks.
Applicants have asked the South Gauteng High Court in Johannesburg for final relief first, which entails a review of the regulations, and interim relief in the alternative, which means that the implementation of the 20c rate on Tuesday could be suspended pending the review.
If the court found against Vodacom and MTN, it re-establishes the role of Icasa as not just a regulator but another kind of public protector.
This fits into the context of a developmental state.
Call termination regulations govern the wholesale termination rates that cellphone network operators charge to receive calls on each others networks.
The regulator says that from Tuesday, the rate must drop to 20c from 40c in line with a process that began in 2010 when call termination regulations were first introduced. MTN, for example, will have to pay 20c per minute per call its customers make to the Vodacom network and vice versa.
But if their customers call the Cell C or Telkom Mobile, Vodacom and MTN will pay 44c and only receive 20c from the smaller operators. The latter practice is provided for by asymmetry, which is a regulatory discretion usually favouring companies whose market share is less than 20 percent.
Even so, globally asymmetry is awarded over the first three to four years of the company’s existence. This is an argument that Vodacom and MTN have raised, pointing out that Cell C had been in the market for more than a decade. The much younger Telkom Mobile was launched in 2010.
Icasa has argued that Vodacom and MTN hold more than 80 percent of the market.
Wim Trengove for MTN opened arguments on Tuesday saying the margin of profit that would be transferred from to Cell C and Telkom Mobile from MTN and Vodacom increased over time if the 2014 regulations were implemented.
MTN later submitted that the Electronic Communications Act, the prevailing act in the case, outlawed the asymmetric rate.
“We are not saying the regulation is unlawful, but because different rates are prescribed for different networks we submit it’s unlawful,” Trengove argued quoting section 37(6).
He was later challenged by his opponents because this clause in fact governed interconnection agreements between single parties and not the actual regulations. Vodacom and MTN also took Icasa to task over the determination of its cost base at which an efficient operator could operate. They accused the regulator of getting the cost “hopelessly wrong”.
Icasa intended for the interconnection rate to be on a downwards glide path from 20c to 15c next year and reach a cost price of 10c in 2016. But the authority suspended the implementation of the last two rates on the basis that the numbers were indefensible, after it sought expert opinion from Genesis Analytics, an economics consultancy.
Because Icasa set aside the 15c and 10c rates and officially repealed these in an amendment to the 2014 call regulations, which was published on Thursday, MTN and Vodacom argued that the 20c rate should also be abolished. It could not independently stand as a rate because it was a stepping stone from the 2010 regulation of 40c to the destination of 10c, which was flawed.
Icasa rejected this argument because it had repealed the rates. But the operators argued case law said one reason could not be substituted for another.
Fanie Cilliers for Vodacom argued that the “inference was almost irresistible that [20c] was a thumbsuck”.
The applicants also claimed that Icasa refused to disclose the methodology it had used to determine the rates, but Icasa turned on them arguing that the operators selectively disclosed their cost data.
Icasa argued that if the 20c rate was not implemented on Tuesday it would create an unregulated market. It added that it had tried to drop the rates for MTN and Vodacom faster than their smaller competitors to level the playing field, especially for Cell C, which said it could breach debt covenants if the rate was not implemented.
“Failure to reach agreement on this may affect Cell C’s sources of short-term liquidity,” Graham Mackinnon, the company’s chief legal officer said in court papers filed on March 11. – Additional reporting by Bloomberg