towards a fair and efficient economy for all

Towards a fair and efficient economy for all

Overview

• Potential harm to competition arising from high interconnection

costs

• High mobile call termination charges

• Competitive constraints

• Waterbed effects

• Ex –post and ex-ante

• Conclusion


Potential harm to competition arising from high costs of interconnection

• A coordinated rather than competitive outcome – restricting competition resulting in higher end user charges

• Exclusion of small operators – network effects favour large networks

• Networks have a monopoly over termination of calls – leads to detrimental monopoly pricing and lower consumption of calls


Call termination rates in South Africa


Source: Telkom and Neotel call termination rates from interconnection agreement between Telkom and Neotel, Mobile operator and ECN call termination rates from Vodacom and ECN interconnection agreement, downloaded from http://www.icasa.org.za/

http://www.icasa.org.za/

Mobile call termination prices, Euros per minute, January 2008


Source: Competition Commission analysis and European Regulatory Group, 2008

Competitive constraints

• Discounts for access charges

• Discounts for on net calls

• Least cost routing

• Retail constraints from community service telephones


Waterbed effects

Arbitrary reduction in call termination rates may result in:

• Higher access charges

• Less discounts for on net calls

• Higher prices for smses and data

• Increase in retail voice call charges for prepaid customers


Ex-post and ex-ante

• Commission authorities have ex-post powers – intervention after

the fact, eg. determination of penalties after finding of collusion

• Sector regulator has ex-ante powers – intervention before the fact,

eg. price control and access conditions

• Commission is not mandated to set rates – this is an ex-ante

remedy

• Chapter 10 of the ECA gives ICASA these powers


Conclusion

• Market failure in call termination requires a direct ex-ante remedy like a price control – there are no tools in Chapter 2 of the Competition Act for regulating ex-ante – Ch 2 is only ex-post.

• There is a need for strong regulatory intervention which should take into account the waterbed effects that might arise

• Icasa should conduct a thorough market study, consistent with the requirements of section 67(4) of the ECA, in order to ensure that the appropriate regulatory intervention is applied

• Icasa must be given the opportunity to determine appropriate cost orientated levels for call termination rates

• Commission will participate in Icasa‘s regulatory processes on interconnection


Thank you!

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Cases involving interconnection rates:Cell C vs MTN

• Cell C alleged that MTN was refusing to recognize its rollout of CSTs and to interconnect with Cell C at the CST rate, which was significantly lower than the commercial rate for interconnection

• Cell C was obliged to roll-out 52 000 CST’s in under serviced areas

• Definition of under serviced areas differs from licence to licence

• MTN objected to Cell C’s definition of under serviced areas and charged Cell C commercial interconnection rates

• Commission investigated and referred matter

• Subsequently, Icasa published its intention to clarify definition of underserviced areas and Commission withdrew case

• Parties settled the matter


Cases continued…Bevan Booy (Amatole) vs Cell C

• Bevan Booy alleged that Cell C was refusing to interconnect with Amatole (an under serviced area licensee - USAL) outside of the Amatole licence area

• ECA provided that disputes relating to interconnection must be referred to Icasa for determination – relates to the interpretation of a licence condition

• Commission’s opinion was that regulatory intervention from Icasa rather than a referral to the Tribunal would be more appropriate

• Nevertheless, matter was subsequently settled with the Commission’s intervention

• Cell C agreed to interconnect with Amatole


Cases continued…Bevan Booy (Amatole) vs MTN, Cell C, Vodacom

• Bevan Booy alleged that the 3 mobile operators refused to interconnect with Amatole at the CST rate or the CST rates that they charge each other

• Problem was with the licensing of Amatole and other USALs in that the licences made no provision for CST interconnection rates

• Complaint was referred to Icasa


Cases continued…Naidoo vs MTN and Vodacom

• Naidoo alleged that MTN and Vodacom colluded to increase interconnection rate prior to Cell C entering the market to prevent Cell C from expanding in the market

• Commission and Icasa agreed that the Commission would have jurisdiction as it deals with collusion

• Matter is currently under investigation


Cases continued…Reyneke vs MTN, Cell C and Vodacom

• Similar to the Naidoo complaint

• Alleges collusion, but is broader than interconnection – mobile operators are alleged to have colluded to keep mobile prices excessively high

• Matter is currently under investigation


Cases continued…Patricia De Lille (ID) vs Mobile operators


• Raises the same issues as the Naidoo and Reyneke complaints

• Concern regarding the negotiation of variations to interconnection rates by mobile operators – may amount to collusion

• Commission is investigating allegations

• Commission will participate in Icasa’s regulatory processes on interconnection

Cases continued…Pan-African Web Solutions (Paws) vs Vodacom

• Recent case, currently under investigation

• Paws (licensee) alleges that Vodacom had refused to interconnect with it

• After meeting with Icasa, Vodacom agreed to interconnect

• However, Vodacom is offering Paws different interconnection rates than those given to a similar licensee

• Matter appears to fall under the ECA and within jurisdiction of Icasa


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