Phone rates to come down.

Telecoms Regulator doing the right thing? 

Let me give credit where it is due. I mentioned some weeks back that ICASA had put out a discussion document about defining the wholesale call termination market. I encouraged you to have your say. Did you? I suspect not. Light reading it was not. Neither was it as riveting as a Jonathan Kellerman. What is was, was an indication that ICASA are taking a long overdue, sensible, logical, approach to building the regulations that will make the new Electronic Communications Act a workable tool. Well done ICASA – a good start to this exercise – will be interested to see what ‘peer review’ throws out. 

Now I am no economist or lawyer. I’m an engineer in mind and an explorer in heart. Boy, did I wish I was an economist when trying to wrap my head around ICASA’s document. 

Why is it going to lead to phone rates coming down? Bear with me. 

The approach here is to as rigorously as possible define the markets for all telecoms products (this is 1 of 13 or so?), by product type and geography in order to then define what it is that causes a market to be competitive, or not. In non-competitive markets there is usually an entity that has Significant Market Power and can play with their pricing without fear that customers might choose another product or supplier. Sound familiar? 

Once one has defined the market and measured the players against your definition, and allowed everyone comment before getting as close as you can to consensus, you can then apply regulatory measures to clip the wings of those with SMP. 

The document concludes that Telkom, Vodacom, MTN and CellC all have SMP when it comes to their own customers. Might seem puerile and obvious, but it is necessary to leave no argument unexplored (no lawyer unpaid? ;). 

For some years now the rate which the mobile operators charge Telkom (the only fixed operator around until very recently) has been high. Enough so to skew the retail price which Telkom then charges its customers to call cell phones to such an extent it is often more pricey than calling your cousin in Ozzie. Some feel the rate is about double what it should be. 

ICASA can now (in terms of the EC Act): 

1. force those with SMP to interconnect with any other licensed network operator or service provider;
   (this means Telkom or Vodacom will have to interconnect with the smallest of VoIP providers)
2. force those with SMP not to discriminate on price between the ‘buyers’;
   (Telkom or Vodacom will have to charge the smallest of VoIP providers the same rate they the likes of MTN)
3. ensure those with SMP are transparent with their pricing;
   (you will be able to know who is charging whom what)

and, if need be: 

1. implement price controls;
   (brrr!…two words to strike fear into the hearts of any capitalist or free marketeer – this blunt instrument can get ugly, especially if not thought through properly)
2. enforce operators to have separate accounting systems;
   (here Telkom wholesale division need to be able to report income and costs separately to Telkom retail division – a costly nightmare, but needed it ICASA are to have a hope of working out (f))
3. ensure rates are cost related;
   (are Vodacom et al charging twice as much as they should be? What are their real costs of delivering a Telkom call to one of the customers? It is more expensive on mobile than on fixed – I don’t deny that.)

Rumour has it that the President, shortly before his State of the Nation address, called the Mobile Operators up. “I have to give the country some good news – what am I gong to tell them, eh?” is alleged to have been his opening gambit. “How about I tell them you guys are in negotiations with the DoC to agree on how to bring down the interconnect prices?” The regulations are hardly beyond the starting blocks – we’ve just commented on the initial proposal w.r.t. market definition. 

But, in preference to having radical price cuts forced on them… the Mobile Operators are supposedly agreeing to significant, but phased rate reductions. So don’t expect Telkom to be paying 50% of what they are now within a month or two. Maybe 20% less? 15%? Your guess is as good as mine. And don’t expect Telkom to pass on the entire savings to you (although some seem to think they have to – I’ve not seen anything that forces them to – can anyone point me to some chapter and verse here?). 

Prices will come down though. They have to. “And about time too!”, I hear Sam Subscriber yell. For the first time in many years, we’ll see the kind of downward trend in call prices more mature markets have been seeing for years (just when they are seeing some of the first price increases in many years!) 

Least Cost Routing margins will get squeezed and the need for LCR using Fixed Cellular devices is likely to gradually fall away, with Service Providers making use of VoIP and TDM interconnects, Carrier Preselect, and wholesale resale of calls to introduce more effective and efficient offerings. 

A positive outlook. 

Now, lets see DoC do something proactive (like the Egyptian  government did) about broadband! Somebody wake them up please. The Egyptians? – that’s another story I’ll save for later. 

That’s me. Encouraged.