Mobile phone rates and putting people before profits

The new regulations relate to something called Mobile Termination Rates, which Icasa has rejigged to bring down the cost of communication and promote greater competition among mobile operators.

But when Judge Mayat made her ruling on 31 March, the news was confusing: some people were saying MTN and Vodacom had won, others that the regulator, Icasa (Independent Communications Authority of South Africa), had won. At midnight on 1 April Icasa’s new rates came into effect.

Mobile Termination Rates (MTRs)

Mobile termination rates (or interconnect fees) are the fees that mobile providers charge each other to carry calls over their networks. So if I make a call to a friend who has a different network from me, there is an interconnect fee that adds an extra cost to the call on top of the basic rate per minute.

This is not the first time Icasa has used MTRs as a tool for regulation. In the early 1990s, when MTN and Vodacom started operating, Icasa required Telkom to pay higher termination rates to help subsidise the start-up of MTN and Vodacom, to give them a foothold in the market. This effectively created a R50 billion subsidy over 20 years, and the two companies have done very well out of it.

Fast forward to 2001, when Cell C entered the market. By now, Icasa no longer regulated MTRs; they were instead regulated within the sector, and the rates were at an all time high (R1.23/minute). For established operators MTN and Vodacom this did not make much of a difference as most of the calls made were on their networks and didn’t incur a termination rate. But for newcomer Cell C, their small user base meant that most of their calls were terminating on someone else’s network. The result was MTN and Vodacom securing a 500% profit every time a Cell C call terminated on their networks.

MTN and Vodacom go to court

But Icasa has been slowly returning MTRs back down to pre-2001 levels in an attempt to bring down the cost of communication. This year, they went a step further by halving the interconnect fees for the smaller operators, so that MTN and Vodacom would have to pay 44c/min and Cell C and Telkom Mobile would pay only 20c/min.

These are the regulations MTN and Vodacom went to court over. Their argument was that Icasa did not follow proper procedures when determining the new mobile termination rates.

The court agreed and ruled that Icasa’s process was “unlawful and invalid.” But the court acknowledged that the new termination rates were in the public interest and allowed them to take effect on 1 April as planned – but only for six months. In the next 180 days, Icasa must present amended regulations that will pass legal muster in order for the new rates to stick.

What the court case revealed

The mobile operators have all run expensive PR campaigns to cast themselves in a good light during this process; each one wants to be seen as the operator most committed to providing cheap, reliable communication to the public. (Cell C also waded in, positioning itself as an alternative to the corporate bullying on display from MTN and Vodacom, although if it were Cell C that had 80 percent of the market and 35 percent profit margins, it would be unlikely that things would be much different.)

MTN and Vodacom, meanwhile, worked hard to paint a picture of Icasa as a heavy-handed regulator trying to eat into their profits.

In fact, the MTR saga shows that Icasa is a weak regulator, simply too under-resourced and lacking in capacity to implement effective regulations. The MTR court ruling made it clear that Icasa’s objective was in the public interest, but Icasa blundered in its process.

It also revealed that corporate secrecy around MTN and Vodacom’s pricing structures prevented Icasa from actually regulating with the necessary information.

The outcome In the short term, it is a good thing that Icasa has a six-month period to fix the mess. Thanks to the court ruling, we have a relatively progressive interconnect fee structure in place and this needs to be translated into lower call costs for ordinary users.

Icasa now has a window to get its house in order, but its performance up to this point does not inspire confidence.

Most importantly, the MTR saga has shown that the people’s voices are often lost in a very technical debate that involves nuanced regulation, complicated technology, and high levels of corporate secrecy.

Unless the public organises to assert its right to communicate, we can expect no different in the future.

R2K’s Vula ‘maConnexion campaign is striving for affordable and quality telecommunication for everyone. For more information visit www.r2k.org.za/right2call.

For further reading and analysis see Jane Duncan on cellphone pricing wars