Picture: THINKSTOCK
Picture: THINKSTOCK

NEXT month, there will be a final reduction in wholesale or mobile interconnect rates under the mobile termination rate glide path, which was implemented by the Independent Communications Authority of South Africa three years ago.

The rates will fall to 40c for both peak and off-peak periods from a high of R1.25 three years ago. Termination rates are fees that mobile operators pay to carry each other’s calls.

The initial expectation was that mobile termination rates would translate into lower retail prices for consumers, but opinions differ on whether that has been achieved.

A report released in November by Research ICT Africa shows that South Africa’s mobile affordability is ranked 33 out of 46 African countries surveyed. The reduction in mobile termination rates has "failed to produce the positive" competitive outcomes witnessed in countries such as Mauritius, Kenya, Namibia and Ghana, the report states.

Cell C sparked a price war last year when it reduced its prices to a flat rate of 99c per minute to any network. Its competitors introduced a range of temporary price cuts.

According to the report, dominant operators have been able to withstand short-term pricing pressure because the termination rates reductions have "apparently been too small" to allow marginal late entrants to sufficiently undercut incumbent operator prices.

World Wide Worx MD Arthur Goldstuck says there "is no question" the lower termination rates resulted in lower call rates, especially for prepaid calls, compared with three years ago.

Brian Neilson, a consulting director at research firm BMI-TechKnowledge, says while there has not been a reduction across the board, the lower wholesale prices have filtered into the retail pricing models. He says the "price war is here to stay".

"The reality is that we have not yet hit the bottom, and the operators still have reasonable margins to play with," he says.

Cell C CEO Alan Knott-Craig has previously called for a significant reduction of the mobile termination rate to 15c, arguing this would lower the industry cost base, encourage more operator-to-operator traffic and enable lower retail tariffs.

Mr Goldstuck says the fall of the termination rate to 40c paves the way for an "even more dramatic price war than we have seen so far".

"It means that the cost of calls can be brought in line with fixed-line calls, minus the line rental, and that will be another nail in the coffin for Telkom’s fixed-line business. Competition is more likely to intensify than quieten down in this new pricing landscape," Mr Goldstuck says.

Mobile voice has long been the largest source of revenue for operators in sub-Saharan Africa, representing 82% of all mobile retail revenue at the end of 2011. But with voice revenue now under pressure, operators are increasingly looking at data for revenue alternatives.

Analysys Mason principal analyst Roz Roseboro expects voice revenue to continue to decline in sub-Saharan Africa as markets mature and the effect of regulatory and competitive shifts hit voice pricing.

Mobile voice pricing has been on a downward trajectory over the past five years because of the continued declines in mobile termination rates and more intense competition — and this is expected to continue during the forecast throughout 2017, Mr Roseboro says.

Internet Solutions communication services executive Wayne Speechly expects the reduction in termination rates to be a key driver in enabling the "next evolution of user-centric telecommunications" in areas such as enterprise mobility.

In addition to driving innovation, the rate drop will spur competition in the local telecommunications market.

The reduction will also force providers to differentiate more on services and value adds, as the lower input costs will commoditise voice minutes across both fixed-line and mobile networks, which will greatly benefit end-users.