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    February 15, 2014

    Strategy Works: MTN Legal Action Against Icasa Has Major Ramifications

    MTN‘s decision to take legal action against Icasa, and by extension the government, over the recently announced mobile termination rates (MTR) is a game changing step that could have ramifications for years to come, according to Steven Ambrose, Strategy Works CEO.

    Vodacom and MTN both publicly voiced their displeasure at the new termination rates announced by ICASA on 29 January. The main bone of contention was the significant and unprecedented asymmetry** awarded to smaller operators.

    Icasa initially proposed an asymmetry rate of 40 cents in 2013 and then announced a final rate of 44 cents.

    “œThe result of this would be a net cash flow effect of R1 billion in the initial year of the new termination regime from the larger networks to the smaller ones. This is amount that was too significant for the larger networks to ignore,“ he says.

    Termination rates, despite their emotive connotations, remain one element of the pricing structure that makes up call charges for the networks. Whilst termination rates are already a distortion in a fair and competitive environment, the introduction of asymmetry needs careful consideration to prevent the asymmetric rate becoming another inhibitive distortion to the pricing structure.

    Ambrose says the high court appeal from MTN for interim relief marks a new chapter in the relationship between the networks and Icasa and by extension government itself and has the potential to delay MTR and asymmetry for years to come and strain the network operators‘ relationship with Icasa and government to unprecedented levels.

    Consumers will maintain that they have been ripped off for far too long in this environment, and the public outcry in reaction to MTN‘s court action will be largely negative for the networks. Having said that, Strategy Worx has long maintained that this latest round of MTR cuts will not result in massive benefits for the consumer in the short term because they won‘t immediately change the competitive landscape between the networks, but will, if properly implemented and managed, result in a more competitive landscape over the next few years, which will be of great benefit to the general public.

    “œIt is Strategy Worx‘s contention that the Icasa termination rates announcement was hasty and poorly considered. The principle of reducing termination rates is sound and should be encouraged by all participants, as it removes a major unnecessary and largely arbitrary distortion in the market. However, given than asymmetric rates represent a major distortion of the market, any intervention of this nature should be carefully considered, reached only after exhaustive consultation, and very closely monitored with clear objectives and performance metrics in order to make it effective in levelling the competitive playing ire,“ he says.

    MTN‘s contention is that this has not happened and given the financial implication on the businesses of the major networks, their legal challenge to the process was not unexpected, Ambrose concludes.

    **Asymmetry is the process where their large networks pay more, in this case 22c more, under the proposed Icasa regulations to the small networks, for their calls to terminate on that network. In return the smaller players pay 20 c less for their calls to land up on the larger networks, giving the smaller networks an advantage.

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