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MTN SA CEO: “MTR regulations are irregular”

March 7, 2014 • Mobile and Telecoms, Opinion

The telecoms industry has spent the last 4 years on a journey towards cost-orientation, regulatory best practice and parity. That journey must continue and MTN fully expects termination rates to go on falling. But this fall must be informed by a proper process and rational decision-making which is based upon the most relevant information. In MTN’s view this ought to include a transparent and credible cost study that reflects the costs incurred for all players in the market, including smaller players. This approach is well known throughout the world and can be executed in a fair and commercially sustainable basis.

Zunaid Bulbulia, Chief Executive Officer of MTN South Africa (Image source: file)

Zunaid Bulbulia, Chief Executive Officer of MTN South Africa (Image source: file)

MTN’s concern is that the Regulations in their current form are irregular.  In short, we believe the Regulator is incorrect with regards to its conclusions in relation to inefficient pricing, the need for additional pro-competitive terms on MTN and Vodacom and that there exists a justifiable basis for the degree of asymmetry that has been proposed.  In addition, the implementation of the Regulations is made almost impossible because they lack clarity in critical areas.

Furthermore, the new termination rates are not reflective of the costs of terminating calls in South Africa and some well-established licensees will now be allowed by ICASA to charge termination rates that are four times as high as the price charged by MTN for terminating calls on its network. How overcharging the larger networks’ subscribers to call smaller networks will deliver cheaper prices for all South African is something neither ICASA nor the recipient of the so-called “asymmetry” has managed to explain. The proposal is nothing more than a tax on MTN’s subscribers to fund the smaller players’ marketing promotions for the next 3 years. This is a proposition that is not only commercially unsound, but unsustainable as well.

MTN supports a continued decline in mobile termination rates, but this decline must be driven by a process that ensures MTRs are reflective of the costs incurred by all players in the market. There are some commentators that argue that asymmetry is offered to operators based on scale but what is conveniently forgotten is that asymmetry is based on a cost justification and that best practice is only to offer it to new entrants and for a limited time period of 3 – 4 years.

The reason for this time limited regulatory cross-subsidy is that there is no incentive for the beneficiary of the aid to become efficient in the market if it can continuously rely on cross-subsidies from its competitors.  And what is troubling is that those that have already received this benefit of asymmetrical rates from MTN have been operating for more than 12 years, are now no longer new entrants but are established operators.

MTN has properly exercised its right to ask the Court to review the Regulations and to clear all of these matters up.  That is in the interests of everyone in the industry and of course all consumers regardless of which Network they choose.

The MTN 2G network covers an area of more than 800000 km2 and our 3G network covers more than 75% of the population and that footprint is increasing on a daily basis.  This means that vast tracts of geographic areas that were previously underserved and citizens that were marginalised have been given the opportunity to become part of the digital age.  All of these improvements in coverage and capacity is to the benefit of the consumer and can only be done when fibre is rolled out and new base stations constructed.  We are proud of being able to say that we had a part to play in bridging the digital divide and providing Broadband for All.

MTN South Africa has re-invested approximately 85% of its profits back into its network over the last few financial years. This more than R20bn capital investment was driven by our customers’ demands and the desire to provide the latest digital broadband technology to all citizens of South Africa. As a result, MTN has significantly increased its high speed 3G coverage and launched a world-class, high performance LTE network. The same cannot be said about the scale of investment by the recipients of the proposed asymmetry. This raises an important issue for us all; why should MTN continue to invest if players that don’t are then allowed to invoke downstream regulatory subsidies to bring their business back into the race?

MTN has also spent billions of Rands in subsidising the cost of handsets for both our pre-paid and post-paid subscribers. Through our Corporate Social Investment initiatives MTN has also invested almost R400 Million since 2009 in diverse areas such as health, education, establishing computer laboratories at critically challenged schools, entrepreneurship developments as well as responding to socio economic emergencies with amongst other blanket drives.

There are documented economic, social and employment benefits in ensuring Broadband for All. Every government understands this and all are proposing targets and policies to deliver these benefits to their citizens. South Africa is no exception, and our Government has set very ambitious targets in terms of Broadband for All.  Such ambitious targets will require significant further investment.

Securing the R100’s billions required to deliver Broadband for All is a global race. South Africa will need to compete on the global scale to attract the necessary capital. The investment needed that underpins the governments’ targets will seek a combination of scale, an enabling regulatory regime and a competitive playing field that fosters risk-taking and innovation.

South Africa, for all its past short-comings, has produced two operators, (one uniquely South African) that have the necessary empowerment credentials and which have the scale (locally and regionally) and financial backing to meaningfully contribute to the challenging government broadband targets. MTN’s track record has attracted a large body of local empowerment shareholders through its Zakhele share scheme including large institutional shareholders that manage pension monies.

While these operators require no special favours or protection, they have the scale and global muscle to deliver the substantial investment required to maintain, and improve, South African’s standing in the global race for Broadband access investment.

If returns become dictated by inappropriate regulatory intervention rather than innovation and investment, South Africa’s Broadband for All objective will be put at risk and South Africans will ultimately be all the poorer for it.

Since 2002, telecommunication costs have consistently been the service with the lowest CPI index when compared to 39 different groups of services as published by STATSSA. This is despite substantial increases in basic input costs (with fuel and electricity almost trebling during this period). Additionally, it appears that there is a misconception that the retail market is not competitive in SA and that asymmetric rates will assist in this regard, which is clearly not supported by facts. Subscriber churn rates in South Africa are very high, especially for prepaid subscribers that account for more than 80% of subscriptions.  High churn is consistent with a competitive market that is working well for consumers that feel that they have genuine choices available to them. Despite public perception, there is no direct link between retail and wholesale (termination) rates. This fact is supported by a number of independent empirical studies that have been shared with the Regulator.  A decline in retail rates is a function of competitive activity rather than Regulatory intervention.

While regulatory interventions such as the Call Termination rate regulations may be well meaning in the short term, these interventions may have negative long-term consequences for our broadband future. The poor relative 4G roll-out and take-up in Europe, the take-over of once mighty Nokia by Microsoft, or the interest of AT&T or America Movil in snapping up stakes in over-burdened, slow growth, highly discounted European MNOs, remind us all that well-meant regulatory activism can quickly turn regional mobile leaders into broadband laggards, at huge economic, competitive and strategic cost for the area.

Taking the telecoms industry regulator, ICASA, to court was unfortunately the last resort for MTN after concerted efforts to engage constructively and in good faith with the regulator failed.  MTN is in agreement with the Communications Minister, Yunus Carrim, in that it is regrettable that the issue ended up with the Court and would have preferred the matter to have been resolved by way of a proper and fair process with ICASA.

Zunaid Bulbulia, CEO of MTN South Africa

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