Interconnection moves could disappoint

Johannesburg, 15 Feb 2007

Lower predetermined termination fees may disappoint South Africans hoping for a break from high phone charges, analysts say.

In his State of the Nation address last week, president Thabo Mbeki said the Department of Communications, network operators and Telkom were finalising plans to address call termination rates "to the benefit of all consumers".

Tackling call termination rates has also been touted at two telecoms colloquia as an effective strategy to lower telecoms costs. A number of Internet service providers have also argued they would be able to lower costs to consumers if interconnection charges were reduced.

However, Andre Wills, MD of Africa Analysis, says a reduction in termination rates does not necessarily translate into cost savings for the consumer.

He says by adjusting call termination rates downwards, network operators will pay less for calls terminating on other operators' networks. In turn, operators receive less revenue for calls terminating on their own networks from other operators, he says. This revenue loss comes directly off their bottom line, he adds.

Trickledown benefits

Dobek Pater, an analyst at Africa Analysis, says as termination charges are reduced, this may reduce operators' operational costs. However, the pool of money that changes hands between operators is a closed circuit, and may not filter to consumers.

"Government may have the expectation it will pass the cost savings to consumers, but ultimately it is their [the operators'] final decision to do so," he says.

Allison Gillwald, an associate professor at the Link Centre at Wits University, says mobile operators have argued before the Independent Communications Authority of SA that termination charges have enabled them to continually upgrade and extend their networks over the last decade.

This is undoubtedly true but so are the extraordinarily profits made by the incumbent operators, especially mobile operators, from termination charges over the last few years, she says.

Winners and losers

Pater notes MTN and Vodacom charge each other R1.25 per minute to terminate on each other's networks, while Telkom pays the mobile operators 28c per minute.

With Vodacom having the most subscribers, it is likely to be the net beneficiary of this arrangement, Gillwald says.

Telkom also stands to benefit from a revised framework, as it could potentially charge mobile operators more, notes Pater.

Operators providing voice over Internet Protocol services also stand to benefit from a revised interconnection regime, he says. Being able to interconnect at lower cost will allow these operators to charge customers to recover costs, he says.

Gillwald says there is some evidence to suggest that if the interconnection reductions are set correctly, they can increase usage and generate more volumes of traffic and greater revenues.