How prepaid has plunged

Data released last night shows that the cost of pre-paid mobile calls across all networks has dropped by an effective 24% in two years. And there’s more to come, writes ARTHUR GOLDSTUCK.

South Africa’s telecommunications regulator, Icasa, has produced statistics to show the real impact of the drop in interconnect fees – referred to as “termination rates” – for calls between networks.

The average spent on a prepaid call in June 2010 was R1.37, when the interconnect fee had been cut from R1.25 to 89c. With the interconnect fee now down to 56c, the average spent on a pre-paid call in June 2012 was R1.04 – down by 24%.

It is clear, however, that this cost can come down even more substantially. The interconnect fee is on a “glide path” to bring it down gradually, so that the networks don't experience a sudden big fall in revenue. The culmination of the glide path will come in March 2013, when the termination rate will fall to 40c.

 In March 2010, the networks voluntarily cut the fee to 89c a minute, in a compromise to give them more time for submissions to Icasa.

In October that year, Icasa announced that the networks would be required to bring the fee down to 73c at peak times and 65c off-peak, from March 2011. In March 2012, the fees had to come down to 56c and 52c respectively.

The final phase of the glide path will come in March 2013, when termination rates will drop to 40c, regardless of time of day. The underlying significance of this rate is that it sets the base rate that networks can charge their pre-paid customers. Any margin achieved by the operators must be added to this rate. It is for this reason that, when the termination rate was set at R1.25 before 2010, it meant that no call between networks could cost less than around R1,70. This set an artificial – and high – floor level for mobile calls sin South Africa.

World Wide Worx issued a statement in 2006, calling on Icasa and the Department of Communications to reduce the interconnect fee. Only in 2007, however, did Icasa begin a process of “defining the market” with an intention of reviewing the rates. Following a call by then Independent Democrats leader Patricia de Lille in Parliament in 2009, and her party lodging a formal complaint, Icasa announced that it would introduce new termination rates in 2010.

“The introduction of Call Termination Rate Regulations in March 2010, has resulted in the

 cost of prepaid mobile voice calls dropping by 24% from June 2010 to June 2012, from R1.37 to R1.04,” Icasa announced last night. “The 24% percent drop in the costs for prepaid mobile voice calls clearly demonstrates that the benefits of the reduction in termination rates has led to a direct benefit to end-users and particularly the prepaid market, the majority of mobile phone users.”

Icasa offered the following definition and motivation: “Termination rates represent the fee that one operator must pay another in order for consumers to contact each other, where a high termination rate keeps off-net retail prices high.

“The actual cost of a call faced by an end-user is not the advertised, or headline tariff, but the combination of free minutes for recharging and other promotions as well as those calls for which the end-user actually pays.”

Icasa acknowledged that the networks have also played a role in prices coming down: “The introduction of one-rate packages across networks in 2010, new tariff plans launched in early 2012 as well as the increased number and benefits available to end-users through promotional packages subsequent to the regulation of termination rates indicate an increasingly competitive retail market and lower retail prices.” 

This year, a major impact on the average tariff was made by Cell C, which announced a flat rate of 99c per minute, using per-second billing, on pre-paid calls. Various promotional options available from MTN and Vodacom result in many pre-paid calls being even cheaper, although not transparently to the user.

Given that the average call costs R1.04 at a time when the termination rate is 56c, from an average of R1.37 when the rate was 89c, it is clear that the networks are aiming at an average 48c margin across all pre-paid calls. With the interconnect fee coming down to 40c next year, the average call cost is likely to come down to 88c. This also leaves room for a further price war, with networks able to drop costs to anywhere close to that 40c mark.

* Follow Arthur Goldstuck on Twitter and Pinterest on @art2gee

The price trends

The following table is supplied by Icasa. It explains: “The effective tariff is calculated by comparing total revenue to total traffic volumes for a given period of time.  The figures below indicate the industry trend in the effective tariff for a mobile prepaid voice call on a six-monthly basis from January 2010 to June 2012.”

The trends in the effective tariff for a prepaid mobile voice call

Source: MTN, Cell C & Vodacom data, compiled by Icasa

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