How does ICASA facilitate communications inpmg-assets.s3-website-eu-west-1.amazonaws.com/docs/ICASA pres… · Both consumers and mobile operators have benefited from the reduction

1

• How does ICASA facilitate communications in South Africa?

• The Policy framework • Trends in retail prices • Call Termination • Universal Service • The Fixed Line Challenge • How can ICASA address the concern of high

prices? • What would ICASA like to do? • What can ICASA do?

2

• Services cannot be offered without:

– Telephone Numbers

– Spectrum

– Type Approval

– Review of Interconnection Agreements to ensure fairness

• ICASA is the only body that does this in South Africa

3

• Government policy is to address high prices through introduction of competition

– Competition Act of 1998

– Electronic Communications Act of 2005

• ECA:

– ICASA can regulate prices where a licensee has dominance and the market is not competitive

– Governed by Chapter 10 of the Act

4

5

MTN 8ta

Cell C Vodacom

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth6

Vodacom MTN

Cell C

0

1000

2000

3000

4000

5000

6000

7000

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

1000

2000

3000

4000

5000

6000

7000

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

1000

2000

3000

4000

5000

6000

7000

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

0

1000

2000

3000

4000

5000

6000

7000

2009 2010 2011 2012

30 outgoing calls/mnth 300 outgoing calls/mnth

900 outgoing calls/mnth

8ta

7

Name of Operator No of tariff

plans Name of tariff plan

Vodacom 6

4U prepaid (Per second)

Vodacom 4 Less (Per second)

AllDay per minute

AllDay per second

Day Saver (per second)

Big Bonus Voucher (per second)

MTN 4

Muziq (per second)

MTN Zone (per second)

One Rate

Call Per Second

Cell C 5

Easychat Standard (per second)

EasyChat All day (per second)

EasyChat per second

EasyChat 99c

99c For Real

8ta 3

Per Second

Per Minute

Per Second 8

Both consumers and mobile operators have benefited from the reduction in MTRs due to: • Operators: Increase in both termination minutes and revenue • Consumers: Reduction in effective tariff per minute

1

1.05

1.1

1.15

1.2

1.25

1.3

1.35

1.4

10000

11000

12000

13000

14000

15000

16000

17000

18000

Ju

n-1

0

De

c-1

0

Ju

n-1

1

De

c-1

1

Ju

n-1

2

Effe

ctive

Tari

ff

Total Prepaid Revenue (LHS) Total Prepaid Minutes (LHS) Effective tariff (RHS)

9

• Level of on- and off-net tariff differential by Vodacom & MTN

• On-net promotions by Vodacom & MTN could further increase in on- and off-net differential

• International voice tariff less than national tariff (Cell C R0.85 int. tariff, Vodacom R0.89 int. tariff) vs R1.04 industry effective tariff)

Operator International tariff

Industry

Effective tariff

Vodacom R0.89 to 52 countries R 1.04

MTN Discounts up to 100% to selected countries R 1.04

Cell C R0.85 to 50 destinations R 1.04

8ta Varies from R2.50 to R176 R 1.04

10

11

• High termination rates: – Represent a price floor for the retail price of a new entrant – Retard efficiency within a firm

• Solution: – Establish cost base for call termination – Introduce regulated glide-path towards the cost base

• BUT Billing systems are the most expensive part of a call

End-user A

End-user B

Network A Network B

Origination Termination

12

2010 2011 2012 2013 2014

Promulgation call

termination

regulations, GG 33698,

29 Oct. 2010

Mar 2011 - First cut:

• R0.89 – R0.73

Mar 2012 – second cut:

• R0.73 – R0.56

Mar 2013 - last cut:

• R0.56 – R0.40

Rate % reduction

Pre 2011 R 1.25

Voluntary reduction R 0.89 -29%

March 2011 R 0.73 -18%

March 2012 R 0.56 -23%

March 2013 R 0.40 -29% 13

14

Pre-2010

March

2011

March

2012

March

2013

Nominal Retail

Rate per minute R 2.50 R 2.50 R 2.50 R 2.50

Termination Rate R 1.25 R 0.73 R 0.56 R 0.40

Margin R 1.25 R 1.77 R 1.94 R 2.10

Less

Origination

(estimation) R 0.60 R 0.60 R 0.60 R 0.60

Profit R 0.65 R 1.17 R 1.34 R 1.50

% change in

profit 80% 15% 12%

This benefit ONLY ACCRUES to the smaller

player

Only the smaller player has “regulated” pricing

power

The increased profit margin makes room for

price competition

15

816 866 1027 1271 826 637

5425 5694 5683 5120

4108 3524

-4609 -4828 -4656

-3849 -3282

-2887

-6000

-4000

-2000

0

2000

4000

6000

8000

2007 2008 2009 2010 2011 2012

R'm

illio

n

Interconnection revenue Interconnection payments Net interconnection revenue (payment)

Telkom’s net position has improved by 37 per cent based on the termination rate reduction

R 0.0

R 0.2

R 0.4

R 0.6

R 0.8

R 1.0

R 1.2

R 1.4

Peak

Off-peak

The potential future? 1. Will further reductions

harm all stakeholders? 2. Slide 9 showed that a small

reduction in retail prices led to an INCREASE in revenue

3. Any future change in rates will be evidence-based

The future?

16

• No. of households with fixed line access to communications continues to decrease

• Access to the Internet is growing because of mobile telephony

• Fixed lines are not as relevant as they should be

• The private sector mobile operators have made significant progress in achieving universal service objectives

5%

10%

15%

20%

25%

30%

35%

2009 2010 2011

No access tocommunications

Fixed lines

Household memberwith Access to theInternet

17

18

Data Bundle Price Download Speed

R331.37

1Mbps

R149

21.6Mbps

Fixed Line Mobile

• Fixed lines are not relevant because they cost too much for lower speeds

• This is out of line with the rest of the world

19

• Fixed lines to the home must be the objective

• High capital cost but very low fixed operating cost for ̴unlimited capacity

• BUT: – Up to 80% of new fixed line network cost is civil

construction

– Delays in getting wayleave approval and water use licences artificially increase this cost

• We have to ensure efficient: – New network deployment

– Existing infrastructure, e.g. LLU 20

21

High cost to communications?

High costs to Industry: • Infrastructure monopoly? • Barriers to network

deployment? • Lack of spectrum? • No spectrum sharing? • Import duties? • Volatile exchange rate?

High costs to end-users

• High costs to industry • Possible monopoly in retail

markets?

22

Cape Town

Bloemfontein

JHB/PTA

Durban

International connectivity

National backhaul

Metro-ethernet

Local access

1

2

PTA

JHB Sandton

East Rand

3

JHB

Local switch

))))))

4

23

Discussion Document

Initiate Enquiry

Data Collection & Analysis

Public Consultation

Findings Document & Draft regulations

Public Consultation

Implementation

Final Regulations

6-9 months > 4 months > 4 months On-going

Resource Needs • Economists • Cost Accounting • Statisticians • Engineers • Lawyers

Resource Needs • Economists • Cost Accounting • Statisticians • Engineers • Lawyers

Resource Needs • Economists • Cost Accounting • Statisticians • Engineers • Lawyers

Resource Needs • Cost Accounting • Compliance: Legal • Impact Analysts

Timeline: > 14 months 24

25

• Cost model for voice value chain

• Cost model for data value chain

• Identify need for intervention

• Regulate prices where necessary

• Other obligations to be considered

26

• Make High Demand Spectrum available ASAP – To new entrants

– To an open access network, and

– To the incumbents

• All this assignment of spectrum to have universal service obligations

• Expected impact: – Increase access for all

– Increase competition leading to lower prices and better choice

– GDP growth as per World Bank forecasts

27

• Broadcasting Value Chain Analysis

– Improve competition

• Support development of Local Content

• It will be technically possible to have 140 SD TV channels in the UHF band.

• We want to make this happen!

28

29

• The Challenge

– ICASA only has approximately R 20 million to do all its discretionary work

– One market review costs approximately R 5 million

• What is ICASA doing about this?

– We are re-prioritising our activities BUT

– We do not have sufficient funds to support parliament in all of its objectives

30

31