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Cost to Communicate in SA - Presentation to Parliamentary Portfolio Committee

This presentation discusses the cost to communicate in South Africa, the impact of current termination rates, strategies to lower costs, and challenges faced by operators. It also explores the move towards a cost-based model and the need for regulatory certainty.

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Cost to Communicate in SA - Presentation to Parliamentary Portfolio Committee

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  1. Cost to Communicate in SA - Presentation to Parliamentary Portfolio Committee on Telecommunications and Postal Services 7 November 2014

  2. Agenda • Background to Cost to Communicate • The impact of the current MTRs • & the move towards a cost-based model • Short-term and future strategies to lower cost to communicate • Challenges faced by operators in pursuit of policy goals

  3. Background to Cost to Communications: The glide path prior to the High Court Ruling • In general, the 2010 termination rate reductions supported greater competition in the market. • The 2010-2013 termination rate reductions assisted Neotel in two ways: • To reduce the cost to communicate for the benefit of consumers • In gaining some, albeit marginal, market share • Neotel: • was the front-runner in lowering retail rates during the initial glide path • lowered its prices to retail subscribers annually pursuant to the initial glide path • reduced its rates for calls to mobiles by up to 45% • further reduced its rates for calls to Telkom by up to 20% • was able to reduce its rate for on-net calls (Neotel to Neotel) to zero during off-peak hours. • Rates for calls from pre-paid subscribers were the same as rates for calls to post-paid subscribers from the date of launch of Neotel’s prepaid services (July 2010) until March 2012. • Rates for calls from our pre-paid subscribers did not change between February and March 2012.

  4. Neotel lowered its retail rates by 40% from March 2010 to February 2012, passing on 90% of the call termination rate reductions R0.62 Neotel retail price reduction Neotel retail MTN, Vodacom Cell C, Telkom Call termination 0.85 0.44 0.40 R0.69 call termination rate reduction (R0.61 reduction to Cell C, Telkom)

  5. Rates for calls to Mobiles

  6. Rates for calls to fixed

  7. The impact of the current MTRs and the move towards cost based model • Background to Cost to Communications after the high court ruling. • No regulatory certainty during the six-month period after the Court ruling. • Neotel was not able to adjust its pricing during the High Court’s six month period due to regulatory uncertainty. • Neotel welcomes the current termination rate regime. • MTRs should be low since these dominate costs for smaller operators such as Neotel. • Neotel further supports ICASA’s use of the LRIC+ methodologies that lower call termination rates. • Cost-based model creates some opportunities for smaller players to compete with large incumbents. • The MTR regulations will help reduce the cost to communicateand the implementation of the current termination rates will bring about the regulatory certainty needed in the industry. • Neotel believes that the current rates (supported by asymmetry) creates some scope for small and new entrants to compete against incumbents. • Neotel is currently reviewing its retail pricing and expects to make an announcement soon.

  8. Short-term and future strategies to lower cost to communicate - voice, data, broadband in SA • In October 2014, Neotel announced its price reduction on its broadband services. • This is in line with Neotel’s on-going commitment to: • provide leading edge broadband services to its customers, and • Reduce the cost of communications in SA • Further, Neotel discontinued the sale of NeoBroadband services below 2 Mbps speeds and reduced its packages by up to 42%. • Neotel is also offering its NeoBroadband customer’s greater speeds at the same monthly cost for a 24 month term, while providing uncapped and unshaped symmetrical Internet access. • Neotel also discontinued its services below 2Mbps, except on its CDMA network due to technology & SPECTRUM limitations and customers can upgrade their 1 Mbps service to the 2 Mbps service at the same price for a 24 month term and 2 Mbps service customers upgraded to 5 Mbps at the current charges for 2 Mbps. • NO BROADCASTING MIGRATION = NO DIGITAL DIVIDEND = NO SA CONNECT • In addition, NeoBroadband Fibre customers now have the ability to boost their speeds “on demand” to cater for their temporary needs for higher speed above and beyond their subscribed speed. The customer will only pay for the higher speeds for the period they require the boosted speeds.

  9. Challenges to implementing policy goals and increasedaffordability, availability and accessibility • This has negative effects on costs incurred by operators in providing services to consumers, and inflates the prices charged. Key challenges include: • Access to properties • Inconsistent rules applied by municipalities to operators • Municipalities demanding excessive bank guarantees to obtain and unreasonably high fees to process wayleaves. • Large incumbents entering into exclusive deals with private property owners - preventing smaller players from providing services in those properties. • Current A2P SMS regulatory framework is not conducive to smaller players • No wholesale termination rate for A2P SMS services in SA. • Toll-Free Services NOT Toll-Free • DTaPS in consultation with COGTA, ICASA, etc. must prioritise and expedite the development of rapid deployment policy directions and regulations so as to streamline the way leave approval process. • An economical sound regulatory approach is required to bulk SMS termination in SA. • In order to ensure effective competition in the SMS termination market, a wholesale termination rate for A2P SMS services must be introduced in SA. • This will help with the growth of smaller players in the industry.

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