Telkom takes call rate battle to court

Telekom is taking the Independent Communications Authority of South Africa (Icasa) to court over its decision to eliminate asymmetric mobile termination rates (MTRs) for smaller mobile network operators.

Termination rates are the fees that operators pay each other when customers on one network make calls to those on another.

In his Interim results for the six months ended September 2022Telekom said that Icasa had concluded that only new mobile operators could qualify for asymmetric MTRs, while a 20% threshold for qualifying for termination asymmetry also had to be dropped.

“Telecom has filed a judicial motion to review and set aside the findings in Icasa’s findings document, arguing that the conditions under which asymmetry was made persist, that the findings are irrational and that they do not promote competition,” he said Operator.

Mobile termination rates have fallen from around 125 cents per minute in 2009 to 13 cents per minute in 2017, leading to significant price reductions in voice calls for consumers.

Icasa’s findings come after it released its discussion document on MTRs for public comment in November 2021, which proposed scrapping the MTRs and all incumbent operators charging each other at the same rate.

These suggestions were before heavily criticized by Telekom and Cell C.

Telekom argued that it and Cell C had yet to reach the minimum efficient size to compete effectively.

“Those of the authorities [Icasa’s] The proposal to remove the pro-competitive MTR asymmetry for existing mobile operators comes at a time when Vodacom and MTN continue to hold a duopoly position in the retail mobile market with a combined market share of 82% in terms of mobile voice subscribers and 88%. of mobile voice sales in 2020,” said Telekom.

Vodacom and MTN support scrapping the MTRs, with the latter joining Icasa in opposing Telkom’s legal challenge.

The table below shows the mobile subscribers and market share of Vodacom, MTN, Telkom and Cell C according to their latest available financial results.

Their revenue market share based on their last year’s results is also shown in the table and chart below.

A recently Daily investor analysis revealed that Vodacom has gained market share at the expense of Telekom and Cell C over the past nine years.

Largest Mobile Networks in South Africa – Subscribers and Market Share
cellular network number of subscribers Market share of subscribers Revenue Market Share (2021)
Vodacom (September 2022) 45.51 million 40.56% 43%
MTN (September 2022) 35.88 million 31.98% 26%
Telecom (September 2022) 18.02 million 16.06% 23%
Cell C (June 2022) 12.79 million 11.42% 8th%

Currently, Telkom and Cell C are allowed to charge 13 cents for terminating a call on their networks, while Vodacom and MTN are only allowed to charge 9 cents.

These asymmetric MTRs were intended to level the playing field between the legacy networks and newcomers to increase competition in the market in favor of subscribers.

While Vodacom and MTN were launched in South Africa in 1993 and 1994, Cell C and Telkom Mobile have only been around since 2001 and 2010 respectively.

Telekom held a 50% stake in Vodacom until 2008, and it only decided to launch its own mobile network after selling its stake for around R22.5 billion.

Due to their greater economies of scale, the two larger networks had a much lower cost per call, making it difficult for new players to compete while growing their networks.

Apparently Vodacom and MTN do too I Agree increase their MTRs from 20 cents per minute to 1.25 rand in advance of Cell C launch,

This culminated in Icasa adopting the Termination Rate Rules in 2010 and revising them several times thereafter.

These revisions included a glideslope that would result in a reduction in MTRs over time as the gap between the larger and smaller networks began to shrink.

The final glideslope is as follows:

  • October 2014 to September 2015 – 31 cents vs. 20 cents
  • October 2015 to September 2016 – 24 cents vs. 16 cents
  • October 2016 to September 2018 – 19 cents vs. 13 cents
  • October 2018 to September 2019 – 18 cents vs. 12 cents
  • October 2019 to September 2020 – 16 cents vs. 10 cents
  • October 2020 to present – 13 cents vs. 9 cents

Among the arguments made by Vodacom and MTN in support of a move to symmetric MTRs between the incumbents is that this would be in line with international best practices, for example in Europe.

However, Cell C said comparing South Africa’s operating environment to Europe was “completely inappropriate”.

“The development of the South African mobile market in no way resembles the modern European markets, but rather the European markets of the early 2000s, before the quest for symmetry in these markets, which only began in the early 2010s,” the operator said.

Cell C further claimed that real cost reflection for voice calls only emerged in the last three years.