High interconnection rates 'hamper growth`

South Africa has the highest interconnection rates - the cost to make a call across another operator`s network - of the countries surveyed by UK telecommunications analyst Robert Hall.

In a report entitled "Setting Interconnection Prices in Africa", Hall states that in SA, the interconnection rate amounts to 66% of the price a customer pays to connect a call from a fixed-line to a mobile phone, compared to 37% in Kenya and 27% in Tanzania.

The report was released this week in UK-based telecommunications publication "The Balancing Act".

Several local telecommunications operators say that while they generally agree with the report, a lot hinges on the final passing of the Electronic Communications Bill and the Independent Communications Authority of SA`s findings from its current interconnection hearings.

Hall`s findings show that a call from a prepaid mobile phone to a landline amounts to 11% of the overall cost - the lowest of the four countries.

He contends that reductions in interconnection rates - the amount operators charge each other to use their networks - have not always led to price cuts for customers.

"Today competition in the mobile telecommunications market is widespread in Africa, and increasingly, competition is being introduced into the fixed telecommunications market.

"With multiple operators providing networks, interconnection is essential so that customers on one network can communicate with customers on another network. Without this facility, it is impossible for new operators to start providing any service."

Hall says interconnection is necessary for a competitive market, but the prices charged for carrying traffic from one operator`s network to another have generated extensive negotiations and disputes in most countries around the world, including Africa.

He says a few tenths of a cent in an interconnection rate (whose typical values are 1 US cent a minute for calls terminating in the fixed network and 12 US cents for calls terminating in a mobile network) will make a big difference to costs and profits, so it is not surprising that operators will bargain hard over the actual numbers.

The table below shows interconnection rates as a percentage of what the customer is charged in a selection of African countries:

[TABLE]

Hall says governments and national regulatory authorities responsible for the telecommunications industry are keen to see lower interconnection rates so that more citizens can benefit from telecommunications, and so that the economic and social benefits of telecommunications are more widely available.

"The linkage between interconnection rates and retail prices seems weaker in Africa than in other countries, and additional regulatory controls on some retail prices may be necessary."

In reply to Hall`s report, Telkom issued a statement saying: "Telkom has from time to time passed on the benefit of reduced interconnection rates to customers in the form of lower fixed to mobile retail tariffs when mobile operators reduced their termination charges."

"In reality, interconnection rates that have been set are based on a cost plus margin equation aimed to benefit those providers that have invested in self-provisioning technology," says Elia Tsouros, Verizon Business executive. "Telkom, Vodacom and MTN have done really well out of regulated interconnection rates that have been set high, enabling them to realise their ROI and reach profitability sooner rather than later.

"As early entrants into these markets this was probably realistic. However, it has been allowed to progress for two years too long."

Hall says that in theory a new entrant faces a choice of whether to build its own network or to use that provided by the incumbent operator. It makes this decision based on the alternative costs, and interconnection rates are an important part of the calculations, along with the costs of leased lines, transmission links and other related costs.

He says if interconnection rates are lower than the costs of building out a network, the new entrant prefers to minimise its build and use the incumbent operator`s existing network. High interconnection rates will encourage it to increase its network build, satisfying government policies of promoting investment.

Dave Gale, Storm`s new business director, echoes this view. "High interconnect rates may force new or existing operators to roll-out their own infrastructure instead of leasing, which will have a long-term beneficial impact on the retail rates."

Vanashree Pillay, Cell C`s executive head of corporate communications, says the network operator supports the development of a clear interconnection framework that encourages competition and makes it possible for new entrants to negotiate reciprocal and non-discriminatory agreements.

"We believe that a strong interconnection framework must be supported by Chart of Accounts and Cost Allocation Manual regulations which will provide ICASA with the necessary cost information to address interconnection charges," Pillay says.