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Towards a fair and efficient economy for all

The high cost of interconnection rates Presentation to Parliament’s Portfolio Committee on Communications Shan Ramburuth Commissioner , Competition Commission 15 September 2009. Towards a fair and efficient economy for all. Overview.

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Towards a fair and efficient economy for all

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  1. The high cost of interconnection rates Presentation to Parliament’s Portfolio Committee on Communications Shan Ramburuth Commissioner, Competition Commission 15 September 2009 Towards a fair and efficient economy for all

  2. 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 Towards a fair and efficient economy for all

  3. 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 Towards a fair and efficient economy for all

  4. 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/ Towards a fair and efficient economy for all

  5. Mobile call termination prices, Euros per minute, January 2008 Source: Competition Commission analysis and European Regulatory Group, 2008 Towards a fair and efficient economy for all

  6. Competitive constraints • Discounts for access charges • Discounts for on net calls • Least cost routing • Retail constraints from community service telephones Towards a fair and efficient economy for all

  7. 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 Towards a fair and efficient economy for all

  8. 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 Towards a fair and efficient economy for all

  9. 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 Towards a fair and efficient economy for all

  10. Thank you! Tel: 0123943332 Fax:0123944332 email: shanr@compcom.co.za Towards a fair and efficient economy for all

  11. 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 Towards a fair and efficient economy for all

  12. 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 Towards a fair and efficient economy for all

  13. 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 Towards a fair and efficient economy for all

  14. 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 Towards a fair and efficient economy for all

  15. 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 Towards a fair and efficient economy for all

  16. 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 Towards a fair and efficient economy for all

  17. 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 Towards a fair and efficient economy for all

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