Jingle Cells: A Revolt against High Cellphone Costs by South African Consumers, with Strong Backing by the Government, Could Mean a Merrier Christmas for Callers. but Is Their Nerve Sufficient to Stare Down the Service Operator Leviathans? Asks Tom Nevin

By Nevin, Tom | African Business, December 2009 | Go to article overview

Jingle Cells: A Revolt against High Cellphone Costs by South African Consumers, with Strong Backing by the Government, Could Mean a Merrier Christmas for Callers. but Is Their Nerve Sufficient to Stare Down the Service Operator Leviathans? Asks Tom Nevin


Nevin, Tom, African Business


The South African cellphone industry is in unprecedented turmoil. The sector is in for a shake-up so bone-rattling for service providers that it could have users dancing for joy. For the mobile phone companies' relentlessly squeezed customers, the development could be an extra cherry on the Christmas cake, especially in the size of the rate reductions being touted for this year.

In the mushrooming mobile phone issue, two of South Africa's biggest and richest companies are going head to head with the government over what the state says are 'exorbitant interconnection charges'. These are the fees levied by operators to connect calls from one service to another.

Service provider majors Vodacom and MTN say they will fight tooth and nail to protect this particular revenue stream, while the government is prepared for heavy-handed intervention that will wrest massive revenues away from service operators and hand them back to users in the form of much-reduced rates.

The parliamentary oversight committee investigating the rate structure suggests the charge should be slashed immediately from R1.25 to R0.60, with staggered reductions over the next three years to around R0.25.

Operators protest that such a cut would slice about R4bn ($555m) off their revenue. The Minister of Communications, Siphiwe Nyanda, was quick to point out that South African service providers' interconnection charges of $0.27 a minute are greatly in excess of emerging country norms. In South Korea, the connection rate is $0.05, in Malaysia $0.05 and in India $0.02.

Attempts by Icasa (the Independent Communications Authority of South Africa) to settle the issue by 'moral suasion'--a telecommunications industry euphemism for Thabo Mbeki's 'quiet diplomacy'--came to naught, opening the way for industry regulator Icasa's Paris Mashile to impose a like-it-or-not much-reduced interconnection rate, the long-festering sore that led to the present ruckus.

[ILLUSTRATION OMITTED]

Blame unenforced legislation

It need not have come to this if legislation put in place four years ago to prevent the kind of quagmire the industry finds itself in now had been enforced. Legislation that has been on the statute books for over five years insists that the cost of linking a call between rival networks must be based on the cost of providing that service. John Holdsworth, chief executive of private telecoms company ECN, and a voice for consumers, says that had Icasa applied that law, it would have saved consumers "more than R25bn in the past five years based on what the interconnection fee should have been".

"If these regulations are applied--and they should be because it's unlawful not to--then the fee would drop to as low as R0.20 or R0.15," says Holdsworth. "There is no need for political intervention; Icasa has just got to implement the existing laws."

[ILLUSTRATION OMITTED]

The service provider giants protest that they need to charge high rates to pay for network infrastructure, but also concede to profits in the billions of rands.

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Jingle Cells: A Revolt against High Cellphone Costs by South African Consumers, with Strong Backing by the Government, Could Mean a Merrier Christmas for Callers. but Is Their Nerve Sufficient to Stare Down the Service Operator Leviathans? Asks Tom Nevin
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