STATEMENT: R2K calls on MTN & Vodacom to drop case against Icasa and stop profiteering

STATEMENT: R2K calls on MTN & Vodacom to drop case against Icasa and stop profiteering

Issued on 27 February 2014, for immediate release.

The Right2Know Campaign calls on MTN and Vodacom to drop their court cases against Icasa immediately. MTN and Vodacom are opposed to Icasa’s new mobile termination rates (the fees that networks charge each other to carry calls over each other’s networks), which would see emerging networks paying a lower rate of 20c/min, while networks with a large market-share would pay 44c/min (only a slight increase from the current rate of 40c).

This progressive pricing structure is an important step towards providing cheaper and better telecommunications to all South Africans, but the MTN-Vodacom duopoly seems determined to continue its profiteering at the expense of the public’s right to communicate.

Both operators have attempted to justify their legal action by arguing that Icasa’s new pricing structure is somehow arbitrary and unfair. It is a misleading claim. (See “Fact sheet”, below.)

Icasa’s regulations are an extension of existing policy that started in 2010, when the regulator did a cost study and determined that the market lacked the necessary competition to bring down the cost of communication.

As a result, the last three years have seen greater competition, lower prices, and greater access to telecommunications across South Africa. To suggest that that Icasa’s latest pricing structure was arrived at arbitrarily or without justification is clearly false.

Last week, MTN CEO Zunaid Bulbulia suggested that Icasa’s new pricing scheme is an attempt to “subsidise” telecom companies that are “failing”, and punish MTN for running a successful network . Again, this is misleading.

Icasa’s pricing structure does not simply favour one particular network over another, but instead promotes a more diverse telecommunications sector – a reasonable request from a regulator. Indeed, MTN and Vodacom benefitted from a similar pricing structure when Icasa implemented a fairer interconnection structure between Telkom and MTN and Vodacom, when they were building their networks. It is an important step from the regulator to ensure a fairer pricing scheme that prevents a duopoly, and ultimately protect the interests of South African cell phone users.

When MTN and Vodacom hit the mobile scene in 1994, there were no such regulations guiding mobile interconnect fees, so their duopoly emerged unfettered by competition. When Cell C was launched in 2001, MTN and Vodacom prepared for the threat of competition by increasing mobile termination rates from 20c in July 1999 to 119c in July 2001 — nearly a 500% increase[i]. This favored the duopoly because most of their subscribers’ calls were on-network and was done to keep Cell C out of the market. This continued until Icasa intervened in 2010, again in the face of much protest from MTN and Vodacom.

Whatever claims they might make, it is plain that MTN and Vodacom’s legal action is not in the public interest. They are acting to protect their shareholders’ advantage.

The Right2Know Campaign is committed to fighting for accessible and affordable telephony and internet access. We will continue to intensify our Vula’maConnexion campaign demanding cheaper airtime and data for all.

FOR COMMENT, PLEASE CONTACT:
Mark Weinberg (R2K National): 084 993 0591
Dale McKinley (R2K Gauteng): 072 429 4086
Desmond D’Sa (R2K KZN): 083 982 6939

FACT SHEET:

• Gaining market share in the telecommunications sector is extremely difficult due to high capital start-up costs. Regulating interconnect fees is one way to encourage competition.
• When Cell C announced plans to enter the market in 1998, MTN and Vodacom manufactured high interconnect fees in order to protect their share of the market from competitors.
• MTN and Vodacom used this pricing structure as a source of income as they became net-recipients of interconnect fees and smaller competitors Cell C and Telkom become net-payers.
• Icasa’s pricing structure would see a course correction to the nine years of unfair pricing manufactured by the incumbents MTN and Vodacom.
• Under the new regulations MTN will not pay any more than they currently do; their costs will remain the same.
• The previous three years of rate costs have shown that when savings are passed on to the public, the use of phones increases and with it the revenue. In fact, previous price cuts have resulted in increased profitability.
• The difference is smaller competitors will now become the net-recipients of interconnect fees and MTN and Vodacom will become net-payers. While the new rate structure does represent a ‘subsidy’ for smaller operators to build infrastructure and gain market share, it is not unlike a similar estimated R5billion interconnection ‘subsidy’ paid by Telkom to MTN and Vodacom as they were building their networks.
• Ultimately, Icasa envisions that all current providers will pay the same interconnect fee (10c/min by 2019)
• For more information on Icasa’s new pricing structure, visit www.r2k.org.za/2014/01/30/Icasa-cost-cuts

[i] Theron and van Eeden, Asymmetric Mobile Termination Rates in South Africa, 2011.