Opinion: Asymmetry will hobble roll-out

Comment on this story


The telecoms industry has spent the past four years on a journey towards cost-orientation, regulatory best practice and parity.

That journey must continue and MTN expects termination rates to go on falling. But this must be informed by a transparent and credible study that reflects the costs incurred for all players in the market. This principled process is known throughout the world and can be executed in a fair and commercially sustainable basis.

MTN’s concern is that there is no cost basis for the new mobile termination rates and, even more so, has not been provided with any insights into the methodology or data that was used by the Independent Communications Authority of SA (Icasa) to compute its new rates. With such a large impact on its business, MTN believes it is fit and proper to question the process as a duty towards our shareholders, many of whom are broad-based black economic empowerment shareholders.

Digital age

The MTN 2G network covers an area of more than 800 000km2 and our 3G network covers more than 75 percent of the population and that footprint is increasing daily. This means that vast tracts of geographic areas previously underserved and citizens marginalised have been given the opportunity to become part of the digital age. All these improvements benefit the consumer and can only be done when fibre is rolled out and new base stations constructed. We are proud of being able to say that we had a part to play in bridging the digital divide and providing broadband for all.

MTN has invested more than R26 billion, representing 84 percent of profit, in network and other infrastructure in the past five financial years, and at a time when infrastructure investment was lagging in a variety of capital intensive industries. This investment was driven by customer demand and desire to provide the latest digital broadband technology to all citizens of South Africa. MTN has increased its network investment in its 3G and LTE networks so customers can reap the benefits of improved coverage and capacity, enabling higher data throughput speeds.

MTN has spent billions of rand in subsidising the cost of handsets for pre-paid and post-paid subscribers. Through its corporate social investment initiatives, MTN has invested more than R300 million since 2009 in areas such as health, education, computer laboratories at critically challenged schools, entrepreneurship programmes, as well as responding to socioeconomic emergencies with other blanket drives.

There are documented economic, social and employment benefits in ensuring broadband for all. Every government understands this and all are proposing targets and policies to deliver these benefits to their citizens. South Africa is no exception, and our government has set ambitious targets.

Securing the hundreds of billions of rand required to deliver broadband for all is a global race. South Africa will need to compete on a global scale to attract the necessary capital. The investment needed that underpins the government.s targets will seek a combination of scale, an enabling regulatory regime and a competitive playing field that fosters risk-taking and innovation.

South Africa, for all its past shortcomings, has produced two operators, (one uniquely South African) that have the empowerment credentials, scale (locally and regionally) and financial backing to contribute to the challenging government broadband targets. MTN’s track record has attracted a large body of local empowerment shareholders through its Zakhele share scheme, including large institutional shareholders that manage pension monies.

While these operators require no favours or protection, they have the scale and muscle to deliver the substantial investment required to maintain, and improve, South Africa’s standing in the global race for broadband access investment.

What MTN cannot accept is for this cost-based principled approach to be reversed for selected players, increasing MTN’s subscribers’ costs, as huge dispensations are handed over on the basis of regulatory experiments or sympathies, however well-intentioned.

If investors are required to divert scarce investment dollars away from South Africa’s broadband future to subsidise failing voice business plans, then we have to ask what competition is for. The success of a competitor should be dependent on the correct and most efficient utilisation of resources and not on regulatory interventions that decide who should win or lose in the race.

This decision by the regulator raises a number of political, economic and practical questions. For one, does it mean that all telecommunications operators should get competitive funding from larger competitors until each reaches 20 percent market share (a practical impossibility)? Should smaller players or later entrants get a larger subsidy, so they can “catch up” even if the smaller operator has been operating for more than a decade?

Should MTN get a higher termination rate so it can grow market share against Vodacom? Which chief executive would decide to take its business above 19.99 percent market share and lose regulatory protection? What are the guarantees that the subsidy will be spent on securing South Africa’s broadband future, rather than paying off debt or funds leaving the country in the form of dividend payments?

Since 2002, telecommunication costs have consistently been the service with the lowest consumer price index when compared with 39 different groups of services as published by Statistics SA. This is despite substantial increases in basic input costs (with fuel and electricity almost trebling).

MTN supports a continued decline in mobile termination rates, but this must be driven by a process that ensures these rates are reflective of the costs incurred by all players. There are commentators who argue that asymmetry is offered to operators based on scale. But what is conveniently forgotten is that asymmetry is based on a cost justification and that best practice is only offered to new entrants and for a limited time of three to four years.

The reason for this time limited regulatory cross-subsidy is that there is no incentive for the beneficiary of the aid to become efficient in the market if it can continuously rely on cross-subsidies from its competitors.

And what is troubling is that those that have received this benefit of asymmetrical rates from MTN have been operating for more than 12 years, are no longer new entrants but established operators.

More fundamentally, should the larger networks’ customers face higher costs to ensure the smaller network can grow to profitability? Isn’t this the role of risk-capital, rather than the regulators?

The less obvious risk with these proposals is that they create a dangerous precedent. Would MTN be allowed to claim subsidies if it made disastrous investment decisions and its market share crashed below some magical threshold?

So far, other than the significant aforementioned investments made by MTN (and its larger competitor), the smaller operators have made little commitment towards the huge investments required for super-fast LTE, preferring to invoke some downstream regulatory intervention to ride on someone else’s network.

If returns become dictated by regulatory favours rather than innovation and investment, broadband for all will be put at risk and South Africans will be the poorer for it.

Activism

While regulatory interventions such as the call termination rate regulations may be well meaning in the short term, they may have negative long-term consequences for our broadband future.

The poor relative 4G roll-out and take-up in Europe, the take-over of Nokia by Microsoft, or the interest of AT&T or America Movil in snapping up stakes in over-burdened, slow growth, highly discounted European mobile network operators reminds us that well-meant regulatory activism can turn regional mobile leaders into broadband laggards, at huge economic, competitive and strategic cost for the area.

Taking the telecoms industry regulator, Icasa, to court was the last resort for MTN after its concerted efforts to engage constructively and in good faith failed.

MTN is in agreement with the Communications Minister, Yunus Carrim, that it is regrettable that the issue ended up in court and MTN would have preferred the matter to been resolved through negotiations with Icasa.

* Zunaid Bulbulia is the chief executive of MTN South Africa.


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

     

Join us on

IOL-Social networks IOL-Social networks IOL-Social networks IOL-Social networks