Lower interconnect rates mean higher retail prices: Cell C CEO

Lower mobile termination rates (MTR) in South Africa have not resulted in lower cellphone call rates to consumers. However, this is not surprising when looking at international trends, explains new Cell C CEO, Alan Knott-Craig.

Speaking in an interview on Radio 702, Knott-Craig said that lower mobile termination rates typically results in higher retail rates, and not lower mobile call rates like the Department of Communications (DoC) and the Independent Communications Authority of South Africa (ICASA) envisaged.

Knott-Craig pointed to recently-released mobile termination rate research, conducted in numerous international countries, which showed that a reduction in interconnect rates (MTR) resulted in slightly higher retail rates. “I know that it is counter intuitive, but it is what happens,” said Knott-Craig.

ICASA published its final Call Termination Regulations in October 2010, unveiling a glide path which would see mobile termination rates slashed to R0.40 in March 2013.

Considering that peak mobile termination rates were slashed from R1.25 less than three years ago, to the current R0.56, many consumers hoped for significant reductions in mobile voice prices. This has not happened.

Knott-Craig said that mobile operators lose money with lower interconnect rates, and it is therefore not entirely surprising that they would then hike voice prices to make up for the lost revenue, to make shareholders happy.

Government and ICASA’s plan to reduce mobile voice prices through slashing interconnect rates therefore backfired spectacularly.

ICASA has previously hinted that they may act if the cellular operators do not pass interconnect saving on to consumers, but to date nothing has come of this.

However, Vodacom and MTN said that reductions in termination rates do not produce savings to pass on to customers, saying that the opposite is in fact true.

“Over time, lower termination rates do stimulate competition and experience has shown that this is the mechanism that drives a reduction in call charges,” Vodacom said.

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Lower interconnect rates mean higher retail prices: Cell C CEO