Interconnection rates should be determined through a benchmarking process and not the use of costing methods, as the latter would take too long, says Denis Smit, CEO of local research firm BMI-TechKnowledge.
Smit was commenting on the parliamentary process currently under way to examine the high cost of interconnection - the rate charged by one network to have a call terminated from another network.
“Costing is a bit like a game of Chinese Checkers. Each operator will bring in their own set of accountants to say what makes up their costs,” he says.
Rather, telecommunications regulator ICASA should use a benchmarking process by which South African interconnection rates are compared with peer countries, he suggests.
“Once that has been determined, then a 'glide-path' process should be started whereby these costs are reduced over a period of three years.”
On Tuesday, the Parliamentary Portfolio Committee on Communications passed a resolution saying it wanted interconnection rates to be reduced from the current peak tariff of 125c per minute, to 60c, as of 1 November; then a reduction of 15c annually until 2012.
However, committee chairman Ismail Vadi made it clear it is not Parliament's place to set pricing, and these prices were indicative of the legislature's impatience with the exorbitant profits being made by the network operators and ICASA's inability to protect consumers.
Give and take?
Smit also dismisses an assertion by the network operators that if they had to decrease interconnection fees, they would have to recover this in other areas, such as the cost of handsets.
“Market forces and competition will keep the cost of handsets and other services low,” he says.
Lindsey Mc Donald, analyst with international consultancy firm Frost & Sullivan, says - while she believes it is best to keep government and Parliament away from setting prices or interfering in business so directly - this could be an exception.
“The issue is that cellular connectivity has become such a basic service or commodity for the majority of the population, that I am not surprised that Parliament feels a need to intervene,” she says.
Alan Levin, a former chairperson of the Internet Society South African Chapter, feels sceptical that ICASA would be able to force the operators to bring down interconnection rates soon.
“It was a similar story with number portability three years ago. ICASA tried to set deadlines with the network operators, but there was a huge impact on their switching systems that was not taken into account. Similarly here, there will be a huge impact on their billing systems,” he says.
It has been primarily the network operators that have taken full advantage of the deregulation process, and they will continue to do so, Levin notes.
Political football
Dave Gale, former director of Storm Telecoms, says: “I don't think Parliament, the Department of Communications or the regulator have reached a point yet where they understand how to apply the right pressure on the right leverage points and steer the private sector into a competitive, affordable market. I can't say I know better than they, but some governments have it nearly right.”
Gale says the network operators have only themselves to blame for being tardy in addressing some serious imbalances.
“Should have seen it coming boys - now you're political footballs and every firebrand in Parly is trying to score points.”
Gale asserts that, as long as politicians don't see price-fixing as the most effective way of bringing about more affordable telecoms, the current process is a good thing, as there is at least some tangible action where it is sorely needed.
“It will hopefully stem some of the excessive profit-taking and lack of attention to efficiency in all telecoms players,” he says.
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