With the 36c drop in interconnect rates announced by the three cellular network operators and approved by the Independent Communications Authority of SA (ICASA) last week, consumers should be looking forward to significantly reduced telephony bills. But this may not necessarily be the case.
This is the warning from says Graeme Victor, CEO of Du Pont Telecoms, who adds: “It all depends on how the reduction in the interconnect rate affects the retail cost of calls. So far, the network operators – and ICASA – have been uniformly silent on this issue.”
According to Victor, the high cost of cellular calls has little, if anything, to do with the current interconnect rate of R1,25 operators charge each other to carry calls from other networks.
At present, for example, prepaid Vodacom subscribers can pay up to R2,99 per minute for peak off-network calls (from Vodacom to another network). Yet prepaid subscribers pay just 10c per minute less for on-network (Vodacom to Vodacom) calls – despite the fact that the current R1,25 interconnect charge is not payable by the operator.
Cell C, on the other hand doesn’t differentiate in the standard cost of prepaid on-network and off-network calls; while MTN charges its prepaid customers a premium of just 25c for off-networks calls – R2,75 for off-network against R2,50 for on-network.
“This indicates that when interconnect rate is dropped to 89c, it may not result in a similar decline in prepaid call costs, or indeed, in call charges in general,” he says.
“Should government and ICASA be serious about reducing cellular charges, they should probably investigate why ‘on-network’ calls are not significantly less expensive than ‘off-network’ – and keep an eye on the reduction in interconnect rates affects retail call charges,” he adds.
Victor points out that even if the retail cost of calls does come down, contract users in particular – but possibly pre-paid users as well – should carefully evaluate the way in which the networks restructure call bundles in future.
Du Pont anticipates that rather than reduce the cost of their existing bundles – and so reduce their turnover – when lower interconnect fees take effect next month, the networks will simply bundle more “free minutes” into their existing call packages.
“That may appear to offer businesses and high-volume contract users more call time for their rand, but there’s a catch," Victor adds. "Many businesses and high-volume contract users often don’t use all their free minutes every month – and these are generally not carried over to the following month. This means that paid-for minutes are wasted. The availability of even more ‘free minutes’ could exacerbate this wastage problem,” he explains.
In addition, there is evidence from around the world that a drop in interconnect rates does not necessarily lead to a reduction in retail call charges.
This was the case in Kenya, Tanzania and Ghana, according to a 2006 report “Setting Interconnection Prices in Africa,” authored by international telecoms researcher and consultant Robert Hall.
According to Victor, a similar government-led cut in interconnect rates in Israel actually resulted in a rise in overall call costs as operators scrambled to make up for lost revenues. Indeed, one of the larger mobile operators openly attributed the record gross margins it achieved in the year following the reduction in interconnect rates to the fact that ‘lower interconnect charges have improved service margins’.
“There is no reason why the same could not happen here,” he says.