The recently announced termination of rates has significantly benefited Telkom while MTN and Vodacom have lost hundreds of millions in revenue. In a trading statement published by Telkom, the operator said its normalised earnings for the year ended 31 March 2015 will be up significantly. This is a bonus, in part, to lower payments to mobile operators – due to a reduction in termination rates – which resulted in a benefit R743 million.
What are call termination rates?
These are the fees networks pay one another to connect voice calls to one another’s networks, and were the subject of a court battle amongst Vodacom, MTN, Cell C, and Icasa during 2014. Cell C was fighting for greater asymmetry, while Vodacom and MTN were against the move. Asymmetry means that smaller operators such as Telkom’s mobile arm and Cell C are able to charge more to connect calls to their networks than Vodacom and MTN are allowed to charge in return. MTN and Vodacom issued a warning citing that they would each lose out R1 billion in revenue if Icasa allowed the increase in asymmetry proposal to sail through (and decrease in termination rates) for Cell C and Telkom.
In September 2014 Icasa made known its final termination rates which lowered asymmetry from the levels Icasa had previously proposed, but stated that for an operator to qualify for asymmetry it must have less than 20% of the share of total terminated minutes in either the fixed or mobile market. Previously, an operator qualified based on market share – which had to be under 25%. Following the decision by Icasa on termination rates, which still benefited Cell C and Telkom, the latter reported the R743 million benefit. In recent trading updates from MTN and Vodacom, both operators reported losses in revenue based on the termination rates. MTN, meanwhile, saw local revenue decline 3.9% according to its latest full-year results, mainly due to a 36% decline in interconnect revenue due to lower mobile termination rates.
Prices meant to drop
Icasa said that while a reduction in wholesale rates such as call termination will not necessarily mean consumers will see an immediate reduction in retail prices, rates have come down almost immediately when the previous call termination rate cuts were announced. It added that the extent to which retail rates drop is operator-dependent. Both MTN and Vodacom hiked their prices – which the operators warned would happen following Icasa’s decision. Mobile networks advised that a hostile ending could result in appalling consequences, including price hikes, while Vodacom said the impact on revenue means less money for Vodacom to invest in network upgrades and bringing overall call costs down. Cell C also recently hiked its contract prices, which came into effect on 1 February 2015, along with Telkom which unexpectedly increased its line rental prices mid-year.