Namibia has led SA in cutting call termination rates — the fees the operators charge one another to carry calls between their networks. The rates have been cut to 30c/minute, but MTC rivals claim the company has not passed on the benefits to consumers in the form of lower retail rates.

It’s a situation mirrored in SA, where the country’s two largest mobile operators, MTN and Vodacom, have decided not to reduce their off-network call rates despite a cut in termination rates on 1 March.

In some respects, SA has followed the Namibian example in reducing termination rates. The NCC forced down the rates to 30c/minute over an 18-month period; in SA, the Independent Communications Authority of SA (Icasa) is bringing them down over a three-year period to 40c/minute.

This is a manifestation of a general problem, of suppliers in oligopolistic markets not passing on cost reductions to consumers. When international call termination charges came down in Asian countries, many developed-country operators did not make the corresponding reduction in the retail prices. In the Namibian case the regulator has authority over the operator trying to pocket the difference. In the international case, the only pressure that can be brought to bear is by competitive operators using cards or other means.

The event brings together a select group of government, academy and civil society representatives.

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The cuts will likely please fixed operator BT and small mobile operator 3, who both teamed on a campaign to get the rate either cut or dropped entirely. Smaller mobile operators tend to pay more in mobile termination rates as their users are likely to spend more time communicating with other networks than their own. The UK’s larger operators – Vodafone, O2, Orange and T-Mobile – face losing out on up to £1 billion in revenue according to reports. Ian Scales of Telecom TV demands, “Why not take it to zero?”  But the Guardian is skeptic, “This is only a proposal from Ofcom so there will be an awful lot of lobbying from the four big networks, not least of the potential Conservative government, to reduce the severity of the price cuts.”

A benchmarking study conducted by Research ICT Africa, LIRNEasia’s sister organization, on behalf of the NCC indicates that the cost of termination of an efficient operator in Namibia is NAD 0.24 (USD 0.03). The prescribed ceiling for the termination rates  on 1 January 2011 includes a 25% mark-up over the estimated cost of termination.  Any other operator can request a revision of termination rates by demonstrating that its forward-looking long-run incremental cost of termination is above the prescribed ceiling, through the use of the LRIC methodology.

More information is available here.

This includes higher termination rates (levied for ending calls from a new operator’s subscriber to an incumbent player’s network) and port charges (for accepting traffic from a new player to an existing network).

Incumbent operators such as Bharti Airtel and Vodafone are at an advantageous position because they have a large subscriber base and, therefore, it is necessary for the new players to interconnect. If the new operators do not interconnect with them then their subscribers will not be able to call users on the incumbent player’s network.

“The interconnection charges being imposed by the existing players are based on the telecom regulator’s order issued in 2003. Since then the costs have come down drastically. However, the existing players want to continue with the current charges because it benefits them,” said an executive of a new telecom company.

Read the full story in ‘The Hindu Business Line’ here.

This is a case of the market responding to what the customer wants in the face of regulatory failure, or a work around of the type we discuss in our book. From 1999, the Telecom Regulatory Commission has been considering a shift to Calling Party Pays, but has balked for various reasons. In 2004, the decision was taken and a news conference was announced. Just hours before the news conference, the politically appointed Secretary to the Ministry/Chairman of the TRC, unilaterally and possibly illegally overrode the Commission decision, saying he cannot be responsible for allowing this decision to go through just before the election. He kicked it to a public hearing. The public hearing committee counted the NUMBER of submissions pro and con, and decided that the public was against CPP even though it was obvious that the con submissions were based on a common template and were orchestrated by a union. So Sri Lanka remained RPP, while both India and Pakistan, which started the process later, converted and gave the customers what they wanted. Regulatory failure caused by political interference and staff incompetence.

The Tigo action comes in the context of a full-blown price war initiated by “No. 2″ operator Mobitel and the response last week by the market leader Dialog. For the last few years, everyone has been inching toward ending RPP. No RPP was being charged from postpaid customers for all practical purposes. The Mobitel salvo ended it for government employees and pensioners a few weeks back. The Dialog response last week ended it for all, but asked for a one-time fee to get the benefit. Now Tigo has written the script for Mobitel’s response and also perhaps for Hutch and Bharti Airtel Lanka.

The people have been given what they want. But the regulator still has work to do. The fixed networks should not get the free ride on the mobile networks they have enjoyed for the past so many years. Completion of a call originated in a fixed network on a mobile network causes costs on the mobile network. From the time mobile was introduced in Sri Lanka in 1989, the fixed networks have collected the retail price of the call (usually the higher price of a national call) and KEPT IT ALL, without giving one cent to the terminating network. The excuse was that the mobile networks could charge for terminating the calls under RPP.

On the other hand when a call to a fixed network is originated on a mobile network, the mobile operator PAYS A TERMINATION CHARGE to the fixed network. In 2007, for example, Sri Lanka Telecom earned LKR 593 million in such payments. A Sri Lankan fixed network operator will pay termination fees to other fixed operators; it will pay termination fees to foreign fixed operators; it will even pay termination fees to foreign mobile operators. The only operators it will not pay termination fees to are Sri Lankan mobile operators.

Now that consumer demands and competition have ended RPP, the mobile operators are providing termination services to fixed operators for free, cross-subsidizing it from origination services. This is wrong.

It is high time that this anomaly is remedied. Sri Lankan mobile operators are offering some of the lowest mobile prices in the world. The least the regulator can do is to ensure that they are treated fairly.