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Parliament’s Portfolio Committee on Communications (PCC)

Parliament’s Portfolio Committee on Communications (PCC). 29 November 2012. Presented by Mr Hasnain Motlekar. 8.ta is making progress in building its infrastructure and acquiring customers. Progress in own network build-out – end Oct: 2,079 base stations built with 1,805 sites live

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Parliament’s Portfolio Committee on Communications (PCC)

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  1. Parliament’s Portfolio Committee on Communications (PCC) 29 November 2012 Presented by Mr Hasnain Motlekar

  2. 8.ta is making progress in building its infrastructure and acquiring customers Progress in own network build-out – end Oct: 2,079 base stations built with 1,805 sites live 69% of voice subscribers active on our own network – end Oct 94% of data subscribers active on our own network – end Oct Prepaid subscribers increased 52.4% to 1.1 million since September 2011 2.2% market share (0.9% September 2011) LTE trial active based on new access and core infrastructure with 238 sites live

  3. 8.ta has made many significant contributions to lower the cost of communications for its customers Our products are different and relevant to our market: Free Internet to all South African with Google Free Zone with zero account balance required 8ta More Prepaid – rewards customer with free airtime the more they recharge – R50 and above give the customer double airtime: implies off-peak rate 49c per minute 65c to landline numbers Rewards for sending SMSs – 50 SMSs free for sending 5 SMSs / day Unlimited Calls to 1 Telkom Landline for Contract Customers Dedicated iPad tariff and usage portal Unlimited voice offer on postpaid

  4. R149 • 2GIG Anytime Data • 2GB Bundles Data • 5c Price/MB • Prepaid Once-off Internet 2GB Promo with 1GB free Night Surfer. • 2GB Data Bundle at R 149 with an additional free 1GB Night Surfer Data bundle for use between 11pm and 5am • Free email account • Send five SMSs per day and receive 50 FREE to send for that day • One free call-out and support service with every purchase of a 3G data modem • This offer will only be offered on 8ta’s • No modems will be bundled with the promo offer. Data modems with up to speeds of 7.2Mbp/s and 21Mbp/s will be available in store

  5. R1800 • 60GIG Anytime Data • 60GB Bundles Data • 3c Price/MB • The fantastic Prepaid Once-off Internet 60GB Promo + 60GB FREE Night Surfer offers you: • 60GB data bundle at R 1800 for use between 5am and 11pm • An additional FREE 60GB Night Surfer data bundle for use between 11pm and 5am • The bundle is valid for 12 months from date of purchase. • FREE email account • Send five SMSs per day and receive 50 FREE to send for that day • One FREE call-out and support service with every purchase of a 3G data modem

  6. For the past 15 years mobile operators have benefited from high MTRs and high level of profitability whilst sifting competition

  7. 8.ta as the newest entrant has to overcome many difficulties in order to achieve commercial success Compete with well-established incumbent operators which have had a head start of 15 years Incumbents have benefitted from high MTRs for 15 years As a new start-up, current MTRs are below 8ta’s per minute cost 8ta does not have access to <1Ghz spectrum and suffers from a distinct competitive disadvantage

  8. The evolution of MTRs in recent years has had mixed results on the market and on the operators Mobile industry has seen some retail price reductions However, direct impact of lower MTRs on retail prices are not clear 8.ta believe that retail price competition has resulted from improved product offerings driven by 8.ta and Cell C Consumers have benefitted from increased competition in mobile market New entrants should be given higher asymmetrical MTRs which will allow them to compete more effectively with incumbent operators

  9. Governments objectives of increasing competition in telecoms market, resulting in lower consumer prices can only be achieved by reduction of network effect advantage attributable to incumbents Network effect advantage of incumbents can be reduced by either of the following two regulatory policies: Asymmetric MTR rates Elimination of MTR rates with calling party’s network keeping the billed revenue

  10. In current regulatory environment, with MTRs falling, the asymmetry should be increased rather than reduced • Cost per minute differential between the incumbents and the 3rd/4th entrants are absolute in nature. As the absolute value of MTR falls the % increment chargeable by the 3rd/4th entrants, reflecting the absolute cost differential, should result in an increasing % differential rather than a declining one • The absolute cost difference in 2012 was 8 cents and thus if base MTR falls to 40 cents, the asymmetry should increase to 20%

  11. ICASA’s Call Termination Regulations provides for falling MTRs for new entrants On 29 October 2010 , ICASA published its final Call Termination Regulation setting the level of termination charges New entrants (incl Cell C & 8.ta) is allowed to have asymmetrical rates charging a % Mark-Up (MU) on MTRs

  12. In extremis, if MTR’s were scrapped, competition would increase • In the absence of MTR’s, the justification to customers for a price difference on-net / off-net pricing is impossible to sustain • Without differentiated on-net / off-net pricing by the incumbents, the newer, smaller operators can compete more effectively and thereby drive price down

  13. Asymmetry duration is the decision of regulator and typically ranges from3-8 years, till market stabilises and fair competition is introduced

  14. International lessons on asymmetry • How much asymmetry is required for a 4th mobile entrant? • International trend is that the latest entrant receives the highest MTR glide path • Size of asymmetry should be increased as MTRs of incumbent MCOs come down • How long should asymmetry be sustained for a 4th entrant? • Anything from 3 to 8 years, but market penetration should inform final duration

  15. Importance of asymmetric rates Higher termination rates favour larger incumbent operators Symmetric termination rates puts new entrants at a disadvantage Asymmetric termination rates promote fair competition Incumbents should not be allowed to use off-net charges to discourage calls to new entrants

  16. Conclusions 8.ta supports principle of cost-oriented termination rates Call termination rates must allow for full cost recovery Current level of MTRs means that 8.ta is already under-recovering costs Incumbents should not be allowed to use off-net charges to discourage calls to new entrants New entrants (like 8.ta) should be given higher asymmetrical MTRs to stimulate competition and to allow them to compete with incumbents

  17. Thank You!

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