“The high retail prices relate to high wholesale prices, which is the interconnection charge that companies pay each other to terminate the calls of their customers on each other’s networks. Now those have been historically very high and if costs are high it means your retail costs have to be high,” Allison Gillwald, executive director at Research ICT Africa told CNBC Africa.
Around the world, she further explained, mobile termination rates have been reduced which has ultimately led to the reduction in retail prices.
Prices have also been reduced in South Africa over the last three years however remain higher than other countries, including those in Africa such as Kenya, Nigeria, Namibia and Uganda.
“That has been far too little too late in a sense and other countries have gone further more quickly so although South Africa’s prices have come down over the last three years, and we eventually see a positive effect of a reduced mobile termination rate, that is now plateaued,” explained Gillwald.
“You basically have an effective duopoly in mobile with the associated price setting, they [Vodacom and MTN] match each other’s prices so it’s not very competitive.”
As a result, new entrants in the market such as Cell C are still small and yet are charged high interconnection rates, therefore they are unable to price challenge the incumbency or make the necessary investments in their network to drive the quality of their service.
Therefore, the Independent Communication Authority of South Africa has proposed further mobile termination rate deductions over the next three years in an effort to bring down mobile rates in the country.
She added that while these regulatory interventions is an extreme intervention that does distort the market, its purpose is to give the small players like Cell C a short period of time to increase revenues as well as challenge and bring down market prices.
“I think regulatory intervention is always contested so where it has been done in other parts of the world, operators will fight it as it can affect their bottom line. Although one should indicate that this isn’t retail regulation, it is wholesale regulation. It’s trying to bring efficiencies into the market, it’s trying to get cost based wholesale rates, that would be there if there was more effective competition,” explained Gillwald.