South Africa - Vodacom pleaded for the regulator to delay cuts in the MTR

[business day] Vodacom yesterday pleaded with the telecoms regulator to delay the second round of interconnection rate cuts, saying if the new rate was introduced next month it would "devastate" the industry.

In April, the Independent Communications Authority of SA (Icasa) proposed an interconnection rate, the fees mobile operators charge each other to carry calls on to their networks, of 65c a minute in peak and off-peak periods from July 1. This was to be followed by 50c in July next year and 40c in 2012, in a process called a "glide path".

That announcement came a month after MTN, Vodacom and Cell C cut the rate from R1,25 to 89c, instead of the government's required 60c, after a compromise agreement with Communications Minister Siphiwe Nyanda.

The reduction in interconnection rate is expected to stimulate competition, and result in lower tariffs for businesses and consumers who for years have paid exorbitantly for mobile services.

But Howard Sackstein, of Saicom Voice Services, said at Icasa's hearing on proposed rates yesterday that the March reduction had not filtered through to retail prices. He urged Icasa to regulate retail prices.

"Consumers are worse off now than they were before March this year. This is shocking, given what the regulations were meant to achieve," Mr Sackstein said.

Icasa initially proposed a further cut to 65c from 89c from next month, but it is unlikely the new rate will be implemented on Thursday, July 1, as Icasa still has to study the industry's comments before finalising interconnection fees regulations.

Vodacom said at least R600m was wiped off its bottom line since the 89c rate came into effect three months ago, and warned of possible job losses if the 65c fee was introduced this financial year.

Shameel Joosub, MD of Vodacom SA, urged Icasa yesterday to delay implementing the new rate until next March as the business could not handle two cuts in one financial year.

The proposed glide path "is steep and unprecedented ... (and) if not modified the shock to existing business models will be devastating. There's a whole ecosystem that exists around high mobile termination rates. One needs time to effect those changes," he said.

This glide path would make it hard to adjust charging structures, and would be disruptive to distribution channels as there was not enough time to renegotiate contractual commitments.

Mr Joosub said Vodacom was not against Icasa's proposed glide path, just the timing of its implementation. Vodacom proposed it should start next year and end in 2013. It proposed a peak interconnection rate of 81c in March next year, followed by 63c in 2012, and 50c in 2013.

Vodacom head of regulatory affairs Nkateko Nyoka said Icasa seemed to be ignoring the voluntary reduction in March.

"In one financial year you are expecting operators to do something that has not been done in many other economies around the world. Many people will be affected. The first casualties will be the incentives and employment," he said. Vodacom threatened court action against Icasa if it did not follow the correct process in regulating interconnection rates, as stipulated in the Electronic Communications Act.

MTN is expected to take a similar line today in its presentation . In its written comment on draft regulations, it said two steep, unbudgeted cuts in a single financial year would force "dramatic cost-cutting" in its second half.

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