Voice and data telephony are fast becoming commodity-priced services across the African continent, as price wars create a cutthroat market.
But the SA telecoms environment remains overpriced and Internet penetration remains extraordinarily low, prompting executive director of Research ICT Africa Alison Gillwald to call for a serious ICT policy overhaul in the region.
Gillwald points out that, although SA has been an early adopter of many new technologies, its Internet penetration rate remains low and the country is no longer even a leader in broadband access on the most unconnected continent in the world.
She attributes this situation to the high cost of all communication services in the country from mobile through to leased lines and broadband services.
SA over-priced
“Historically, the cellular telephony market has enjoyed profits from exceptionally high, unregulated pricing. Dominant cellphone operators increased their termination rates by 500% in 2002, for example, and they remained there for nearly a decade, while in competitive markets in Africa they plummeted with rapid and effective regulatory intervention,” notes Gillwald.
SA's regulator adjusted the mobile termination price last year. The Independent Communications Authority of SA (ICASA) regulations will require the cellular industry players to reduce their peak cellphone call-termination rates to 73c a minute by this March, to 56c a minute by March 2012, and to 40c by 2013.
Off-peak cellphone termination rates will drop to 65c a minute by March this year and 52c a minute by March next year, with the off-peak charges dropping to 40c a minute by March 2013.
But Gillwald argues that the cuts to South African interconnection charges and, therefore, retail prices, will still be magnitudes of scale higher than the best performers in Africa.
Mobile operators across Africa are reeling from cutthroat competition that has seen call rates slashed by as much as 90% in countries such as Nigeria, Uganda, Ghana, Kenya and Tanzania. This tumble has been accelerated in recent months by the arrival of international operators.
She points out that operators in these countries have all seen positive effects from increased usage, with more affordable mobile prices and, in many cases, greater profitability.
Bharti Airtel, in particular, is shaking up markets, following acquisitions in 16 African countries and its moves to replicate the low-rate strategy that has made it the dominant mobile operator in Asia.
However, delegates at the recently hosted Next-Generation Telecoms Africa 2011 Summit have pointed out that in SA, where mobile penetration is the highest in Africa at 98%, prepaid users pay up to R2.85 per minute, or more than 33 times the Airtel Kenya rate.
Even on special packages, they added, where South African prepaid users can pay rates of as little as R1.50 per minute, the Airtel tariffs are still less than 15% of that amount.
Overall, tariffs in Kenya are now running at around 20% of the equivalent rates charged by Vodacom, MTN and Cell C in SA, and often at a lot less than that, it was also established.
ICASA promises competition
ICASA last week commended itself for the publishing of interconnect regulations late last year, noting that it had two main expectations of the finalised regulations.
“Firstly, we expect the fixed to mobile retail call rates to reduce as the mobile termination rates are reduced. “Secondly, we expect some measure of pass-through to a reduction in retail prices of calls between mobile networks. However, given the nature of product bundling in the provision of retail mobile services, we expect that price reductions will be subject to dynamic competition,” explained the authority.
“ICASA's view is that a lack of effective pass-through to retail prices will indicate that there may be a lack of effective competition in the retail market for mobile services.”
Therefore, the authority will monitor price movements in the retail market for mobile services vigilantly over the coming months to evaluate whether further action is required.
“For further monitoring purposes, ICASA has been and will continue to receive tariff and related compliance reports from the operators,” stated ICASA.
But Gillwald argues that prices need to be understood as policy outcomes. “Any strategy to reduce prices needs to be part of a broader policy overhaul that will require the identification of policy levers to improve the country's sub-optimal performance.
“This will include identifying the necessary conditions for attracting critical investments in infrastructure extension, the optimal market structure and institutional arrangements, together with short-term incentive strategies to promote the uptake of PCs and Internet-enhanced devices, to longer term educational and IT literacy programmes, and identifying demand stimulation strategies that are essential to ensuring digital inclusion,” she advises.
- Leigh-Ann Francis, ITWeb
Thursday, February 24, 2011
Saturday, February 5, 2011
Why ICASA's critics have it wrong
The job of a regulator is never easy. It involves delicately balancing often divergent interests. There is no better illustration of this than the recently published call termination regulations, and the media reports that followed.
In its press release following publication of the regulations, the Independent Communications Authority of SA (Icasa) stated that it had a triple mandate of ensuring fair prices to consumers, promoting competition in the information and communications technology sector, and promoting a favourable investment environment.
But, if media reports are to be believed, publication of the regulations has left parliamentarians and consumers dissatisfied with both the outcome and impact of the intervention.
Icasa’s job is made more difficult by perceptions that have formed over time that it is a weak regulator that dances to the tune of industry. These perceptions persist even though Icasa has made great strides in changing the industry landscape, working under difficult circumstances. It is much easier to throw around unsubstantiated and sweeping statements about Icasa’s authority and abilities than to support it in its efforts.
Much of the criticism levelled against Icasa within the context of the call termination regulations stems from a lack of understanding of the intention and expected impact of these regulations.
Consumers view call termination or interconnection rates as a retail price mechanism whose regulation must then necessarily induce an immediate and direct downward pressure on the price they pay for making calls. When this doesn’t happen, daggers are drawn and Icasa’s efforts are rubbished as futile.
Call termination rates are the fees telecommunications companies charge each other for interconnecting or handling calls across networks. By definition, it’s a wholesole rather than a retail rate.
If such a rate is set artificially at a high level, as has been the case over the last 15 years or so in SA, it affects the ability of smaller operators to compete against larger, more established players. Inevitably, the high wholesale cost is passed on to consumers in the form of higher retail or call rates.
When the wholesale rate is reduced, a natural expectation is for retail rates to follow suit. However, the relationship between the call termination rate and the retail price of a call is not a straightforward one and the impact of a reduction in the former cannot be ascertained based on theoretical deduction.
Economists often use the concept of “rockets and feathers” to illustrate the general rapid rise of prices and their often steady and slow decrease.
What is clear, though, is that a reduction of wholesale interconnection rates always affects competition in a direct manner.
Through competition, retail prices are expected to fall, service quality is expected to improve and more services are expected to be introduced into the market as innovation is spurred.
The primary significance of a reduction of wholesale interconnection rates is to change and modify the electronic communications market structure, to introduce new players into the sector and to foster healthy competition within the industry. It is competition that will result in lower retail rates.
Prudent regulatory practice justifies the regulation of retail prices where there is monopoly supply of goods or services. Where there are multiple suppliers the regulator must ensure that the interplay among competitors is fair; that the exercise of market power is tamed and that there is open, fair and non-discriminatory access to essential facilities, networks and network components.
Where the regulation of interconnection rates has occurred elsewhere in the world, the regulation of retail rates has become unnecessary as prices fall naturally due to competition.
Icasa has issued more than 500 electronic communications services and electronic communications network service licences. However, only a handful of licensees are active in the market, owing partly to high interconnection rates. The call termination regulations, coupled with other interventions, are meant to change the behaviour of market participants, with the ultimate benefits flowing to consumers.
In arriving at the set rate, Icasa had to balance the interests of consumers and smaller operators who would like to see an immediate drop in interconnection rates to cost-orientated levels with those of larger operators who have benefited over time from high interconnection rates and who would like to maintain the status quo or prolong the reduction for as long as it is possible.
The authority proposed a glide path, which gives operators time to adjust their business models and to innovate while at the same time affording smaller operators sizeable cuts.
Following the initial reduction of interconnection rates brokered by former communications minister Siphiwe Nyanda – from R1,25/minute to 89c/minute in peak times, MTN laid off hundreds of workers. Nashua Mobile is also retrenching staff and citing lower interconnection rates as a reason.
Vodacom reportedly incurred losses of about R800m in revenue in the first half of its financial year. Telkom reported a loss of R640m in revenue since the first rate cut in March 2010. Vox Telecom has recently announced an R842m impairment of goodwill at its Vox Orion subsidiary owing to reductions in interconnection rates.
Talk of more industry retrenchments abounds.
Icasa could not ignore the potential job losses at a time when the economy is emerging from a devastating recession. When balanced out, though the benefits of the cuts should outweigh the negatives.
That said, bigger operators must remain viable, while smaller ones are assisted to grow bigger and better — all without compromising healthy and sound competition.
To suggest, therefore, that Icasa has bowed to pressure from the big operators is to ignore evidence and instead fall back on the easier and more comfortable route of rubbishing the regulator.
Icasa is changing for the better while its critics remain stuck in the past.
The work of conducting market reviews using competition analysis is the first ever in SA, yet the quality of the work done ranks among the best countries in the world. This is despite Icasa’s shoe-string budget and inadequate capacity.
It is worth noting that when the Competition Amendment Act was being drafted, the line department had to consider first the financial impact of the amendments on the competition authorities. Adjustments had to be made to the medium-term expenditure framework allocation at the time. The framework is government’s three-year budget projection.
Moreover, the theme of “strengthening the competition authorities” was adopted throughout the consultation stages, making it easier to sell the amendments, get buy-in, and rally everyone behind the competition authorities.
In 2006, parliament passed the Electronic Communications Act, introducing a new way of regulating the industry, and calling for particular expertise, skills, capacity and structure. Yet, unlike the competition authorities, Icasa continues to operate on the same budget and funding model it had during the previous era.
Critical questions were not asked about what the financial implications of the new act would be on Icasa. It is, however, heartening that new communications minister Roy Padayachie has promised to strengthen Icasa by enhancing its financial and technical competency so that it functions with confidence and independence.
This is exactly what Icasa needs now. In the meantime, it will continue to fulfil its mandate without fear or prejudice.
- TechCentral, on behalf of Fungai Sibanda
In its press release following publication of the regulations, the Independent Communications Authority of SA (Icasa) stated that it had a triple mandate of ensuring fair prices to consumers, promoting competition in the information and communications technology sector, and promoting a favourable investment environment.
But, if media reports are to be believed, publication of the regulations has left parliamentarians and consumers dissatisfied with both the outcome and impact of the intervention.
Icasa’s job is made more difficult by perceptions that have formed over time that it is a weak regulator that dances to the tune of industry. These perceptions persist even though Icasa has made great strides in changing the industry landscape, working under difficult circumstances. It is much easier to throw around unsubstantiated and sweeping statements about Icasa’s authority and abilities than to support it in its efforts.
Much of the criticism levelled against Icasa within the context of the call termination regulations stems from a lack of understanding of the intention and expected impact of these regulations.
Consumers view call termination or interconnection rates as a retail price mechanism whose regulation must then necessarily induce an immediate and direct downward pressure on the price they pay for making calls. When this doesn’t happen, daggers are drawn and Icasa’s efforts are rubbished as futile.
Call termination rates are the fees telecommunications companies charge each other for interconnecting or handling calls across networks. By definition, it’s a wholesole rather than a retail rate.
If such a rate is set artificially at a high level, as has been the case over the last 15 years or so in SA, it affects the ability of smaller operators to compete against larger, more established players. Inevitably, the high wholesale cost is passed on to consumers in the form of higher retail or call rates.
When the wholesale rate is reduced, a natural expectation is for retail rates to follow suit. However, the relationship between the call termination rate and the retail price of a call is not a straightforward one and the impact of a reduction in the former cannot be ascertained based on theoretical deduction.
Economists often use the concept of “rockets and feathers” to illustrate the general rapid rise of prices and their often steady and slow decrease.
What is clear, though, is that a reduction of wholesale interconnection rates always affects competition in a direct manner.
Through competition, retail prices are expected to fall, service quality is expected to improve and more services are expected to be introduced into the market as innovation is spurred.
The primary significance of a reduction of wholesale interconnection rates is to change and modify the electronic communications market structure, to introduce new players into the sector and to foster healthy competition within the industry. It is competition that will result in lower retail rates.
Prudent regulatory practice justifies the regulation of retail prices where there is monopoly supply of goods or services. Where there are multiple suppliers the regulator must ensure that the interplay among competitors is fair; that the exercise of market power is tamed and that there is open, fair and non-discriminatory access to essential facilities, networks and network components.
Where the regulation of interconnection rates has occurred elsewhere in the world, the regulation of retail rates has become unnecessary as prices fall naturally due to competition.
Icasa has issued more than 500 electronic communications services and electronic communications network service licences. However, only a handful of licensees are active in the market, owing partly to high interconnection rates. The call termination regulations, coupled with other interventions, are meant to change the behaviour of market participants, with the ultimate benefits flowing to consumers.
In arriving at the set rate, Icasa had to balance the interests of consumers and smaller operators who would like to see an immediate drop in interconnection rates to cost-orientated levels with those of larger operators who have benefited over time from high interconnection rates and who would like to maintain the status quo or prolong the reduction for as long as it is possible.
The authority proposed a glide path, which gives operators time to adjust their business models and to innovate while at the same time affording smaller operators sizeable cuts.
Following the initial reduction of interconnection rates brokered by former communications minister Siphiwe Nyanda – from R1,25/minute to 89c/minute in peak times, MTN laid off hundreds of workers. Nashua Mobile is also retrenching staff and citing lower interconnection rates as a reason.
Vodacom reportedly incurred losses of about R800m in revenue in the first half of its financial year. Telkom reported a loss of R640m in revenue since the first rate cut in March 2010. Vox Telecom has recently announced an R842m impairment of goodwill at its Vox Orion subsidiary owing to reductions in interconnection rates.
Talk of more industry retrenchments abounds.
Icasa could not ignore the potential job losses at a time when the economy is emerging from a devastating recession. When balanced out, though the benefits of the cuts should outweigh the negatives.
That said, bigger operators must remain viable, while smaller ones are assisted to grow bigger and better — all without compromising healthy and sound competition.
To suggest, therefore, that Icasa has bowed to pressure from the big operators is to ignore evidence and instead fall back on the easier and more comfortable route of rubbishing the regulator.
Icasa is changing for the better while its critics remain stuck in the past.
The work of conducting market reviews using competition analysis is the first ever in SA, yet the quality of the work done ranks among the best countries in the world. This is despite Icasa’s shoe-string budget and inadequate capacity.
It is worth noting that when the Competition Amendment Act was being drafted, the line department had to consider first the financial impact of the amendments on the competition authorities. Adjustments had to be made to the medium-term expenditure framework allocation at the time. The framework is government’s three-year budget projection.
Moreover, the theme of “strengthening the competition authorities” was adopted throughout the consultation stages, making it easier to sell the amendments, get buy-in, and rally everyone behind the competition authorities.
In 2006, parliament passed the Electronic Communications Act, introducing a new way of regulating the industry, and calling for particular expertise, skills, capacity and structure. Yet, unlike the competition authorities, Icasa continues to operate on the same budget and funding model it had during the previous era.
Critical questions were not asked about what the financial implications of the new act would be on Icasa. It is, however, heartening that new communications minister Roy Padayachie has promised to strengthen Icasa by enhancing its financial and technical competency so that it functions with confidence and independence.
This is exactly what Icasa needs now. In the meantime, it will continue to fulfil its mandate without fear or prejudice.
- TechCentral, on behalf of Fungai Sibanda
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