Report urges interconnection caution

By Damaria Senne, ITWeb senior journalist

Johannesburg, 19 Mar 2007

South Africa is unlikely to see a drastic reduction in local interconnection charges, but may only benefit from a gradual decrease of about 10% this year, says a new BMI-TechKnowledge report.

This is despite the Independent Communications Authority of SA's (ICASA's) move to intervene to reduce interconnection charges.

The research house's latest report, "The South African Telecoms Market: New Laws, New Rules", explores how the new laws and the resulting changes in the rules of the game will shape the South African telecoms industry. It states interconnection charges could drop by 25% if ICASA successfully forces down these tariffs.

However, it says this is only expected next year because of the lengthy regulatory process and potential legal challenges from major operators. BMI-T senior analyst Cal Falconer says: "We are likely to see implementation [of the new interconnection regime] in 2008."

Legal challenges?

BMI-T head of research Brian Neilsen says Telkom, Vodacom and MTN will probably challenge the interconnection regulations once they have been finalised. Neilsen says this is possible if they are declared significant market operators, as ICASA will place limitations on these companies in order to foster competition in the marketplace.

Neilsen notes that on 27 January, ICASA published draft interconnection guidelines in which it declared Telkom, Vodacom and MTN as significant market players. Stakeholders have until the end of March to provide comment on the draft guidelines, he says. After this, it could take a further six to nine months for regulations on interconnection pricing to be published, he adds.

Neilsen argues the three operators could legally challenge ICASA on the matter. It will be the first test case for ICASA, he says. "It's going to be a big battle."

Dramatic price cuts

The report notes international bandwidth costs through the SAT-3 undersea cable will drop dramatically after the multilateral agreement expires in April 2007.

As a result, existing members will have equal access to landing points. The outcome of the "level playing field" will be an immediate reduction of international wholesale prices of leased circuits and Internet bandwidth, says Falconer. Neotel will also offer, through VSNL, dramatically reduced interconnection rates, forcing Telkom to follow suit, she says.

If these two activities fail to dramatically reduce SAT-3 access charges, there is still a possibility government would intervene and declare the landing points an "essential facility", she says.

VoxTelecom MD Jaco Voigt notes fair interconnection tariffs are not necessarily rock-bottom prices. "We all acknowledge the networks need to invest to maintain and grow their infrastructure."

He adds it is not in anyone's best interests to force interconnect rates below the point where it makes sense to continue investing. However, interconnection prices are too high and ICASA is the only party that can force the change, he says.