Bungling regulators contribute to consumer misery
South Africa is stuck in a telecommunications ice age. When it comes to cellular services and internet connectivity the rest of the world is decades ahead of us. Service providers in the US, UK and Europe beat local providers hands down on measures of qua
Things are so bad we keep entertained by pitting carrier pigeons against Internet service providers. A homing pigeon carrying a 4GB memory stick recently beat Telkom’s standard ADSL package in a ‘race’ to transmit data. The event was a ‘tongue in cheek’ protest against the country’s shocking data transmission rates. The pigeon completed a trip from Howick to Hillcrest (outside Durban) in 2 hours 6 minutes and 57 seconds… Telkom transmitted just 5% of the data in that time. Are we exaggerating the problem?
Government agrees with our assessment
Usually government dismisses complaints from the ‘advantaged’ sector of society with the ‘whinging’ label. But in this case they’re throwing their weight behind the consumer. A recent Department of Communications’ (DoC) International Peer Benchmarking Study compared telecommunications costs in South Africa, South Korea, India, Brazil, Malaysia and Chile with disturbing results. These include:
· Telkom, the most expensive fixed-line provider
· Telkom, the most expensive ‘basket of fixed line business services’ provider
· South Africa, the second highest average SMS tariffs
· South Africa, the slowest average broadband speeds and low Internet penetration rates
South Africa’s latest Internet penetration rate – the number of citizens with either dial-up or broadband Internet connections as a percentage of the entire population – is a piddling 9.4%. South Korea with 76.1%, Malaysia (62.8%), Chile (50.9%) and Brazil (34.4%) put us to shame. And we’re losing ground as the premier Internet economy in Africa too!
When will the situation improve? Consumers who pinned their hopes of faster data transfer rates, larger data ‘caps’ and lower fees on the long-awaited Seacom undersea cable have been disappointed to date.
The price of quashing competition
The situation is just as dire where cellular telephony is concerned. Recent studies show that South Africa has the third highest mobile phone costs in the world – trumped only by Mexico and Turkey. Communication costs spiralled under government’s nose. Instead of clearing the way for increased competition the DoC protected government interests at the recently privatised fixed-line operator Telkom. And the Independent Communications Authority of South Africa (Icasa) has been accused of playing into the hands of dominant private sector competitors instead of ‘fairly’ regulating the industry. Some argue that Icasa has assisted the dominant players in strengthening their industry positions.
It might be worth investigating these allegations with a quick look at interconnect fees. An interconnect fee (sometimes referred to as a mobile termination rate) is charged by one mobile operator to another to carry calls on its network. These fees have been hiked aggressively since they were first introduced and today are charged at R1.25/minute in peak times. Why were the fees hiked so aggressively? “What happened was, initially, when we didn’t know the market size and what the costs were going to be, we had experts from Australia come over to advise Telkom, Vodacom and MTN how the interconnect regime should be structured,” said Uys. What defies belief is that interconnect fees were repeatedly hiked as the number of network users skyrocketed. Whatever happened to the principle of ‘economies of scale’ in a volume-based transaction system?
Cell-C, which started trading after receiving the country’s third cellular licence 10 years ago, believes its competitors colluded to increase the interconnect rate just one month before it started doing business. As a result Vodacom, MTN and Telkom enjoy a significant share of the domestic market for voice and data services to this day. It’s a claim Vodacom and MTN vehemently deny.
Government wakes from its slumber
In recent months government has woken from its long slumber. They’re taking aim at interconnect charges and hope to reduce the rate from R1.25/minute to 95c/minute by November 2009. Their long-term goal is to reduce the fee to 60c/min. The department is getting tough after lengthy (but fruitless) discussions with cellular companies. Paris Mashile, chairman of Icasa wants the mark-up on interconnect charges to be 50% or less. Cell-C, a relative newcomer to the market, proposes a two-tier interconnect fee based on market share. Applying methods formulated in established European markets the group proposes an immediate reduction from R1.25/minute to 75c/minute and the abolishment of the peak/off-peak distinction. The group further proposes it pay a reduced rate of 65c/minute for off-net calls originating on its network
But the cell phone giants won’t play ball. MTN and Vodacom refuse to disclose their costs much to the chagrin of ANC MP Johnny de Lange. We hope government sticks to its guns and instructs Icasa to fix the interconnect charge debacle. We also hope they look carefully at the ‘costs’ MTN, Vodacom and Telkom eventually disclose. We expect there are many ways to add ‘fat’ to such complex calculations!
Editor’s thoughts: South African consumers are victims of a dearth of competition. Companies like Telkom had customers as long as they kept their doors open. You simply accepted their shocking service and uncompetitive tariffs or went without. Are there enough companies in the domestic cellular services space to dispel concerns of monopolistic pricing and servicing activities? Add your comment below, or send it to gareth@fanews.co.za
