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Cell C statement on Draft Mobile Termination Rates

September 9, 2014

Cell C is disappointed by the dramatic U-turn ICASA has made in its approach to remedy the current market failure and promote competition in a duopolistic market.

There are two distinct issues that ICASA has pronounced upon.  The first is the level of mobile termination rates (MTRs) that may be charged by the two dominant mobile operators.  The second is the level of pro-competitive remedy that is appropriate to provide to challenger operators to assist in creating a reasonable degree of competition in the market – this is Asymmetry.  Without such pro-competitive remedy, the South African market will remain a duopoly.

Mobile Termination Rates:

On 1 April 2014, ICASA boldly reduced the MTRs to be charged by the dominant operators from 40 cents to 20 cents.  This was a positive adjustment and no serious argument was presented in court papers from the duopolists that this figure is unreasonable.  Consequently, it is unsurprising that this rate has remained unchanged in the latest draft regulations from ICASA.  As can be seen in the table below, the change between the current proposed regulations and the previous published regulations is inconsequential:

Dominant MTRs (in cents) Original Regulations Current Proposed Variance
Oct 2014 - Feb 2015 20c 20c nil
Mar 2015 - Feb 2016 15c 16c +1c
Mar 2016 - Feb 2017 10c 12c +2c
Mar 2017 - Feb 2018 10c 8c -2c

 

Asymmetry:

ICASA is now proposing a complete U-turn in its implementation of Government policy in respect of pro-competitive regulations and reducing the cost to communicate.  The massive proposed reduction in Asymmetry completely eliminates any pro-competitive remedy. ICASA is now only proposing a marginal cost recovery, which is not, in terms of many international benchmarks and literature, the basis on which asymmetry is determined, and which will have the effect of entrenching the duopoly in the South African market today.  This is a different proposition to the pro-competitive remedy that was gazetted in the original regulations and is particularly puzzling when the number of mobile network operators has reduced from four to a de-facto three in the intervening period.

The Asymmetry is reflected in the table below and reflects the massive and irrational decline:

Asymmetry (cents) Original asymmetry Proposed asymmetry Reduction in asymmetry
Oct 2014 - Feb 2015 24c 10c -14c (-58%)
Mar 2015 - Feb 2016 27c 6c -21c (-78%)
Mar 2016 - Feb 2017 30c 4c -26c (-87%)
Mar 2017 - Feb 2018 10c 2c -8c (-80%)

* applied to those with less than 10% market share by revenue

The proposed regulations appears to be an acknowledgment by ICASA that the duopoly that exists in the South African market today is an acceptable state of affairs and will be allowed to continue.  In the long term this will be catastrophic to both the wider telecommunications industry and to the South African consumer.

The significant reduction in the cost to communicate over the past 18 months was entirely brought about by competition from Cell C.  Should the South African market return to the duopoly of old, all South African consumers will suffer regardless of which network they use.

Cell C is disappointed with these rushed regulations arising from a process about which we also have concerns.  Cell C will engage the Regulator during this short consultation period to ensure that a pro-competitive environment is established.  We are further considering all of our options.

Cell C seeks a remedy of the current market failure and the establishment of a pro-competitive environment that allows all players to offer logical pricing, improved quality of service and attract further investment.




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