457 IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
In the matter between:
MOBILE TELEPHONE NETWORKS (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMUNICATIONS AUTHORl,TY OF SOUTH AFRICA
VODACOM (PTY) LTD
CELL C (PTY) LTD
TELKOM SA LTD
NEOTEL(PTY)LTD
CASE NO: 2014/04699
Applicant
First Respondent
Second Respondent
Third respondent
Fourth Respondent
Fifth Respondent
Sixth Respondent
TWENTY-FIVE FURTHER RESPONDENTS Seventh to thirty-first respondents
And in the matter bet\Neen:
VODACOM (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
MOBILE TELEPHONE NETWORKS (PTY) LTD
CASE NO: 2014/06701
Applicant
First Respondent
Second Respondent
Third Respondent
CELL C (PTY) LTD
TELKOM SA SOC LTD
NEOTEL (PTY) LTD
33 FURTHER RESPONDENTS
458
Fourth Respondent
Fifth Respondent
Sixth Respondent
Seventh to thirty~ninth respondents
FIRST AND SECOND RESPONDENTS' ANSWERING AFFIDAVIT: PART A
459
TABLE OF CONTENTS
THE CALL TERMINATION PROCESS AND ITS IMPLICATIONS ........................... 7
AN OVERVIEW OF ICASA'S POSITION IN RELATION TO PART A ........•...•....... 11
THE NATURE OF THE PROBLEM SOUGHT TO BE RESOLVED BY THE 2014 REGULATIONS AND ICASA'S POWERS TO MAKE THOSE REGULATIONS .... 21
The regulatory framework.-- ..................... .
The objects of the EGA and the role of /CASA
International obligations.
.. 21
........ 25
........ 28
The background to the publication of the Gaff Termination Regulations, 2014 ..... 32
THE QUESTION OF A PRIMA FACIE RIGHT ...••.•.•.••...•...•..........••....•.......••.•••....... 43
THE PROCEDURAL FAIRNESS AND ULTRA VIRES ATTACKS ON THE 2014 REGULATIONS .••...••..•.........••........•.•••......•••.•••.•..........••...••..••..........••.......•.......••••• 44
Introduction .... .............. 44
ICASA's early requests for firm~specific information from licensees ..................... 49
Cell G's request to suspend the 2010 regulations...... .. 57
The cost to communicate programme ......... ..
The 2013 Call Termination Questionnaire
MTN's responses to the 2013 questionnaire .....
Vodacom's responses to the 2013 questionnaire .....
The 2013 Draft Call Termination Regulations ..... .
. .. 60
.... 62
............................ 65
··············· ... 66 . .. 67
Basis of determination of termination rates in the draft regulations ............ . ...... 67
.. 68 Basis of determination of asymmetry in the draft regulations .....
The decision to hold one-on-one meetings ........ .
The MTN one-on-one meeting .......... .
The Vodacom one-on-one meeting ............ .
The Cef! C one-on-one meeting.
MTN's written submissions ............. .
Vodacom's written submissions .... .
Cell G's written submissions .............. .
. .... 69
·················· ................ 71
" ............. 73
.. 74
.74
. ........ 76
"77
The 2014 Regulations...... ................ . 77
THE SUBSTANTIVE ATTACKS ON THE NEW REGULATIONS ........................... 78
460
The principles behind reducing termination rates through regulation and the determination of the final base price.. ..................... . ........................ 78
The adoption of different glide paths for small and large operators resulting in asymmetric termination rates.. .......................................... . .. 84
The determination of the periods of the glide paths and the rates to be charged by smalf and large operators during those periods.. . ...... 87
The detennination of who benefits from the more gradual glide path ......... ., ....... 89
The provision for indefinite asymmetry after April 2017 ........ . ""' 93
The determination of rates and a glide path for tennination on a fixed fine network .............................. .. .... 94
THE IMPACT OF THE RELIEF SOUGHT ON THE SEPARATION OF POWERS .. 95
THE QUESTION OF IRREPARABLE HARM TO MTN AND VODACOM ............... 97
MTN and Vodacom wilf continue to make profits on call termination.......... . .. 99
The scale r.>fthe calf termination rate reductions is not unprecedented ............ 104
The harm relied on is speculative and untenable... . .... 105
Alleged impacts of asymmetry on market structure and the businesses of MTN and Vodacom are overstated and wif/ not cause irreparable harm ..................... 113
THE ISSUE OF THE BALANCE OF CONVENIENCE .....................•.......•.....•.••.••. 120
AD SERIATIM RESPONSE TO THE FOUNDING AFFIDAVIT OF MTN ............... 124
AD SERIATIM RESPONSE TO THE SUPPLEMENTARY AFFIDAVIT OF MTN .• 157
AD SERIATIM RESPONSE TO THE FOUNDING AFFIDAVIT OF VODACOM ..•. 160
CONCLUSION ........•...........•...•....•..•.......•.......•.•................................•..•.....••...•..... 183
461
I, the undersigned,
NOMVUYISO BATYI
do hereby make oath and say:
! am a councillor of the !ndependent Communications Authority of South Africa
{"ICASA"), the second respondent in these applications. I was appointed to the
Council of ICASA in accordance with the procedures stipulated in section 5 of
the l1
ndependent Communications Authority of South Africa Act 13 of 2000
("ICASA Act").
2 I am duly authorised to depose to this affidavit on behalf of the first and second
respondents in each of these applications.
3 I was involved on behalf of the ICASA Council throughout the process leading
to the enactment of the Call Termination Regulations, 2014 ("the 2014
Regulations"). Accordingly, save where appears otherwise from the context, l
have personal knowledge of the facts that appear in this affidavit. Where
necessary confirmatory affidavits are filed together with this affidavit. The
contents of this affidavit are to the best of my belief true and correct
4 Two mobile operators - Mobile Telephone Networks (Pty) Ltd (UMTN") and
Vodacom (Pty) Ltd ("Vodacom") - have each instituted urgent applications
before this Court concerning the 2014 regulations. MTN and Vodacom seek:
4.1 In Part A of their applications, orders suspending the operation of
5
"\62
numerous regulatlons contained in 2014 Regulations, pending the final
outcome of Part B; and
4.2 In Part B of their applications, orders reviewing and setting aside
numerous regulations contained in the 2014 Regulations.
Given that Vodacom seeks to have its application consolidated with MTN's
application (the first and second respondents do not oppose this) and given that
there is a measure of overlap between the two applications, l deal with both
appl!cations in this answering affidavit.
6 This answering affidavit has been prepared under considerable time pressure.
It is also specifically confined to dealing with Part A of the MTN and Vodacom
applications. I specifically reserve JCASA's rights to deal with all aspects of the
founding papers in detail, in due course, should the need arise.
7 In what follows, I deal with the following issues in turn:
7.1 An explanation of the call termination process;
7.2 An overview of ICASA's position in relation to Part A of this matter;
7.3 The nature of the problem sought to ~e resolved by the 2014
Regulations;
7.4 The question :if a prima facie right, which includes ICASA's response
to:
463
7.4.1 the procedural attacks on the regulations by MTN and
Vodacom;
7.4.2 the substantive attacks on the regulations by MTN and
Vodacom;
7.5 The impact of the relief sought on the separation of powers;
7.6 The question of irreparable harm to MTN and Vodacom; and
7.7 The question of the balance of convenience.
THE CALL TERMINATION PROCESS AND ITS IMPLICATIONS
B
9
This matter concerns the 2014 Regulations made by !CASA regarding call
termination rates.
The 2014 Regulations were made by ICASA in terms of its powers under
section 67 of the Electronic Communications Act 36 of 2005 ("the EGA"). I deal
with the nature and ambit of section 67 of the ECA below.
10 It is important to begin, however, by properly '-:lnderstanding the nature of call
termination,
11 There are two kinds of mobile calls made by consumers - "off-net" calls and
"on-net" calls.
11.1 "Off-net" calls occur when a consumer from one network (say MTN)
464
makes a call to a consumer on another network (say Cell C).
11.2 "On-net'' calls occur when a consumer from a network (say MTN)
makes a call to a consumer on that same network.
12 In the context of off-net calls, call termination is a service provided by one
mobile operator to another to facilitate calls between consumers who are
subscribers of the various mobile operators.
13 By way of example, when a consumer who subscribes to MTN calls a
cons1
umer who subscribes to Cell C, the call originates on MTN's network but
terminates on Cell G's network, Cell C is therefore required to collect the call at
a point of interconnection and then direct it to its consumer's handset. The
termination rate of Cell C is the fee payable by MTN to Cell C for this service in
respect of this call.
14 Of considerable importance is that, as MTN and Vodacom accept in this
application, the originating operator recovers this fee from the consumer who
makes the call. This is done via the total call price billed to the consumer.
14.1 So, in the example above, whatever termination. fee is charged by Cell
C to MTN, MTN will recover this from _the consumer concerned.
Moreover, because MTN sets the price to be paid by its consumers,
MTN wiU not only recuver the cost of the termination rate, but will make
a margin on the overall call cost.
14.2 Similarly, where a Cell C consumer calls an MTN number, Cell C is
465
reliant on MTN to terminate the calL The termination rate is then the fee
charged by MTN to perform thls service.
14.3 Even if MTN's termination rate is different to CeH C's termination rate,
MTN continues to make a margin in providing this service to Cell C.
This is provided that the termination rate is above MTN's costs for
providing this service. (As I demonstrate below, there is no contention
by MTN and Vodacom in this application that the rate of 20c due to
come into force on 1April2014 is below their costs.)
15 This has two important implications for present purposes.
15.1 First, it is incorrect to examine the so-ca!!ed net termination position
(payments less receipts) as reflecting "profits" or "losses" as MTN and
Vodacom do in their founding papers.
15.1.1 These are two separate and different transactions (incoming
and outgoing) and MTN and Vodacom make a margin on both
of these (margin on the outgoing cal! and margin on the
termination service provided in respect of an incoming call).
15.1.2 As such, both activities are p~ofitable for MTN and Vodacom
and this will remain so even when the 2014 Regulations come
into force. The net termination positio'n created by the 2014
Regulations bears no relationship to the profitability of MTN or
Vodacom.
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15.1.3 This is demonstrated by the fact that, in the past few years,
MTN's net termination position has been reduced, but during
those same years, MTN has continued to have increasing
profits (measured correctly as EBlDTA).1 Similarly, since 2011,
Vodacom's net termination position has been reduced but its
revenue and profits (measured via EBIDTA) have been
increasing.
15.2 Second, the net termination position is affected by the volume of
,,incoming and outgoing calls. This is in turn dependent on a range of
factors including the call prices charged by both operators to their
subscribers for off-net calls and the number of subscribers on each
network.11111111111111111111111111111111111111111111111
- At the same time MTN offered promotions increasing on-
network traffic which reduced its flow of out-going minutes and assisted
in decreasing its operational costs.
16 Thus, the focus of MTN and Vodacom o"n the n~gative r\et termination position
that they allege wlll be produced by the 2014 Re.gu!ati6ns is apt to mislead and
obscure the true issues in this applicatlon. Even if- the 2014 Regulations
1 "EB/TDA" is a financial metric widely used when assessing the performance of companies and is an acronym for "earnings before interest, taxes, depreciation, and amortization".
~67
produce this negative net termination position, this does not mean that MTN
and Vodacom are making a loss on such calls.
17 On the contrary, even once the 2014 Regulations come into force and even
where MTN and Vodacom are compelled to pay the relevant rates to Ce!I C and
Telkom Mobi!e 1 MTN and Vodacom will continue to make a profit on each such
call. This is because MTN and Vodacom will be billing their consumers for
each such call and will be earning revenue that is greater than their costs.
AN OVERVl.~W OF ICASA'S POSITION IN RELATION TO PART A
18 As I explain below, the 2014 Regulations are due to come into force on 1 April
2014.
19 However, in Part A of this application, MTN and Vodacom seek an order
preventing the relevant substantive provisions of the 2014 Regulations from
coming into force, pending the outcome of Part B of this application.
20 I deal below with the purposes of the 2014 Regulations and how they came
about. For now, l emphasise that the Regulations have two main aims.
21 First, by setting lower call termination rates, the·2014 Regulations aim to benefit
consumers by reducing the prices that they will pay for making calls.
21.1 Termination charges are a significant input cost that a mobile operator
takes into account in determining the prices that it charges subscribers
to make calls. In fact, they set a floor for those retail prices, because
468
they are a cost that cannot be eliminated by the operator that incurs
them (because they are charged by another operator) and therefore
retail prices must include them.
21.2 Reducing this cost therefore enables the operator to reduce prices to
subscribers; and of course the more competition there is between
mobile operators to attract subscribers, the more likely it is that all or
most of the reduced cost will be passed on to consumers in the form of
lower prices. The reduction of prices towards cost is the natural and
,inevitable result of competition between rival firms.
21.3 The 2014 Regulations prescribe that termination rates are to be
reduced over a period of time, with the ultimate goal that mobile
operators charge a fee for termination that is oriented towards the
actual cost of providing that service. The reduction of the call
termination rate over time is referred to as "the glide path".
22 Second, the 2014 Regulations (like the 2010 Regulations before them) make
provision for different glide paths for sma!I and large operators, which results in
the small operators being permitted to charge higher_ rates for termination over
the period of the glide paths. This is referred t6 as "asymmetry" in setting call
termination rates. The result of this is that from April 2014 to March 2017 MTN
and Vodacom will pay more to Cell C and Telkom Mobile for an MTN or
Vodacom call that terminates on the Cell C or Telkom Mobile network than in
the opposite scenario.
469
22.1 ln deciding to make provision for different glide paths for small and large
operators, ICASA has had regard to the fact that the large operators
have enjoyed many more years of earning profits from termination
charges than the small operators (in particular Telkom Mobile), and also
much higher overa[! levels of profit. This is because they have many
more subscribers and therefore many more calls are terminated on their
networks than of the small operators. They have been able to use those
profits to improve their competitive cffering, in particular to invest in
network coverage, the quality of which MTN recognises in this
'application is one of the most important facets of competition between
mobile operators.
22.2 The imposition of different glide paths allows for the immediate
reduction in termination rates applicable to the majority of terminated
calls while also permitting the smaller operators to earn greater per call
profits from call termination than the large operators for a limited period.
lt is hoped that this will ameliorate in some measure the disadvantage
they suffer because,
22.2.1 particularly in the case of Telkom Moblle, they will only have a
limited period to continue earn.ing profits from call termination,
in contrast to the large operators, which enjoyed a decade or
more to do so; and
470
22.2.2 particularly in the case of Cell C, they have never historically
had anywhere near the same absolute numbers of terminating
cal!s on which to make profits.
23 The effect of granting the relief sought by MTN and Vodacom in Part A would
be to prevent these aims being addressed for a period of many months or
years. In this regard MTN and Vodacom seek the interdict in Part A not only
pending the outcome of the review proceedings in Part B, but a!so pending the
finalisation of any appeals in relation to those review proceedings.
24 ICASA submits that there is no basis for such an interim order to be granted.
24.1 Despite raising every conceivable procedural and substantive challenge
to the 2014 Regulations, MTN and Vodacom have not established a
prima facie right.
24.2 This is especially the case in respect of the regime put in place by the
2014 Regulations for the first year of their operation (1 April 2014 to 31
March 2015).
24.2.1 A substantial number of MTN and Vodacom's cbriiplaints are
directed at the regulatory reg'im'e which will commence only in
2015 or 2016.
24.2.2 Even if these complaints were assumed to be well~founded,
that cannot provide a basis for an urgent interim interdict to be
471
granted now, preventing the 2014 Regulations from even
coming into force.
24.3 Moreover, granting the order sought by MTN and Vodacom in Part A:
24.3.1 will cause significant harm to the millions of consumers forming
part of the South African public who will stand to benefit if the
2014 regulations come into force;
24.3.2 will have the effect of stymieing and impeding lCASA's
statutory role of addressing the high costs of communication as
an independent expert regulator, specifically responsible for
dealing with these issues; and
24.3.3 will involve this Court intruding, via the granting of an interim
interdict, into a heavily policy-laden and polycentric
environment, thus raising very serious separation of powers
concerns.
24.4 It bears emphasis that to the extent that an order of the kind sought by
the applicants could be granted at all, the Constitutional. Court has
repeatedly re-affirmed that an interim -interdict Sgainst organs of state
can only be granted in "the clearest of cases", normally only when
fundamental rights are at stake and, in any event, only after careful
consideration of the harm caused to separation of powers. This is not a
case in which these requirements are satisfied.
24.5 The effect on consumers is of particular importance. The high cost of
472
communications in South Africa is an issue which has received
significant attention in the media, from government, from research
organisations and from the general public. As I demonstrate below,
retail prices for communications services in South Africa are high in
comparison to a number of other African countries and countries in
other parts of the world. This is especially the case in relation to prices
for prepaid products which are used by poorer consumers. The high
cost of communications in South Africa has also been recognised as a
cause for concern in the National Integrated JCT Policy Green Paper
.,which was published by the Minister of Communications as recently as
24 January 2014.
24.6 MTN and Vodacom have simply not demonstrated the type of
irreparable harm that would justify such a far-reaching order. Moreover,
the balance of convenience operates firmly against MTN and Vodacom.
24.7 Indeed, again as l demonstrate below, MTN has itself effectively
recognised that the current call termination rates are above cost and will
need to be reduced to some extent. Vodacom has gone even further
and has expressly accepted that such rates are .tdo high and that they
ought to be reduced as an interim meas.ure.
24.8 Yet, the effect of the relief sought by MTN and Vodacom would prevent
any reduction in call termination rates for many months and even years.
25 Be that as it may, in light of its consultations with its legal representatives and
~73
independent expert economists in preparing this affidavit, !CASA is no longer
satisfied as to the robustness of its conclusions on the appropriateness of the
rates of 15c and 10c set to commence on 1 April 2015 and 1 April 2016
respectively and about the correctness of its decision to impose those rates.
(ICASA does not have concerns about the call termination rate of 20c set to
commence on 1 April 2014, nor about the extent of asymmetry effected by the
call termination rates set to commence on 1 April 2014.)
26 ICASA is also alive to the fact that the 2014 Regulations had to be enacted
withOut.complete cost information being supplied by Vodacom and MTN. This
is because - most regrettably - Vodacom and MTN declined to supply such
information to ICASA, even though they were aware that !CASA did not have it.
It is obviously ideal that call termination regulations be enacted by !CASA after
such cost information is supplied.
27 ICASA has therefore decided to:
27.1 Repeal the 2014 Regulations insofar as they set mobile call termination
rates beyond 31March2015; and
27.2 Undertake a process to reconsider the correctness of the 15c and 1 De
rates, preferably on the basis of complete cost information to be
requested by ICASA and supplied by Vodacom and MTN.
28 Given the nature of the exercise, !CASA envisages that this process will take
six months to complete and will certainly take no longer than a year to
474
complete. A copy of ICASA's resolution of 11 March 2014 in relation to this
decision ls attached as "NB1"
29 Prior to adopting the resolution, ICASA had already proposed a course of
conduct along these lines to the other parties in an effort to resolve this matter.
On 6 March 2014, ICASA's attorneys wrote to the attorneys for MTN, Vodacom,
Cell C and Telkom Mobile making a proposal along these lines. A copy of the
letter is attached mar:~ed "NB2". While the proposal was accepted by Telkom
Mobile and Cell C, rt was rejected by MTN and Vodacom. Copies of the
releVant letters are attached marked "NB3.1 -3.4H
30 Whatever the outcome of the reconsideration process for the years beginning 1
April 2015 and 1 April 2016, what is imperative is that during the next twelve
months (1April2014 to 31March2015), the provisions of the 2014 Regulations
must be operative. This is so for the following reasons:
30.1 It is effectively not in dispute that the current call tern1lnation rates set
by the 201 O Regulations are well above the costs of MTN and Vodacom
and need to be reduced.
30.2 There is a critical need to benefit million~ of cohsUmers and protect their
interests by reducing these rates immediately. Indeed, that is the very
purpose of the 2014 Regulations. MTN and Vodacom do not dispute
this purpose.
30.3 Allowing the 2014 Regulations to come into force for this twelve month
period will only produce a change in the MTN and Vodacom termination
475 476
rates - they will be reduced to 20c. In terms of the 2014 Regulations, termination rates and asymmetry. ln addition, their revenues,
during this period, Cell C and Telkom Mobile wi!! remain at their current profits (EBIDTA) and capital expenditure all increased in this
termination rates - that ls 44c. MTN and Vodacom cannot claim period.
material irreparable harm arising from the implementation of the change 30.5.2 Moreover, such a proposition is not tenable as a matter of logic
in the termination rate they may charge for this twelve month period. given that MTN and Vodacom hold a commanding position in
They do not challenge the call termination rate of 20c imposed on them. the market already with the bulk of market share including
30.4 In respect of this period, the only complaint that MTN and Vodacom can contract subscribers; and this position of strength along with
have is that they believe it is unfair that the rates for Cell C and Telkom substantial profits places them in a position to defend their
,.Mobile do not come down at the same rate as theirs. However, this market position.
does not result in any financial harm to MTN or Vodacom as they 30.5.3 Thus, at worst for MTN and Vodacom, the only effect of the
recover the charges they pay to other operators from their callers (which asymmetric rates during the one year period is that they will
they accept) and they are currently paying these rates already to Cell C have to compete harder with Cell C and Telkom Mobile to
and Telkom Mobile so there is no increase in payments. maintain their substantial existing market shares. This does
30.5 Therefore the only possible harm that remains is the speculative claim not constitute cognisable harm for purposes of the interim
that leaving the termination rates of Cell C and Telkom Mobile interdict sought.
unchanged will have some effect on their ability to compete with those
firms, meaning that they may lose market share. Not only is this not the 31 ln all the circumstances, ICASA opposes the rellef sought by Vodacom and
sort of harm which ought to concern this Court, the harm is highly MTN in Part A of this application. That relief would prevent the relevant
speculative an its own terms and is at odds with the evidence. provisions of the 2014 Regulations coming into_ force on 1 April 2014. There is
no proper basis for such an order to be granted. ·
30.5.1 The history of termination rates decline and asymmetry under
the Call Termination Regulations, 2010/2011 ("the 2010
Regulations") indicates that neither Vodacom nor MTN's share
of the market deteriorated significantly in the face of declining
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THE NATURE OF THE PROBLEM SOUGHT TO BE RESOLVED BY THE 2014 REGULATIONS AND ICASA'S POWERS TO MAKE THOSE REGULATIONS
The regulatory framework
32 The provision of telecommunications services and networks is regulated in
South Africa in terms of the ECA, read with the lCASA Act. !CASA is the
regulator for the communications sector. ICASA was established in terms of
section 3 of the ICASA Act.
33 In te,rms of the EGA, the operator of an electronic communications network on
which telecommunications services (such as voice calls and data services) are
conveyed must hold an electronic communications network services ("ECNS")
licence. A person who provides services to subscribers or other end-users
which are conveyed over an electronic communications network must hold a
separate electronic communications services ("EGS") licence. EGNS and EGS
licences may be issued as either individual or class licences depending on the
scale and scope of the network that is operated and the services that are being
provided. In terms of section 5(3)(c) of the EGA, a person must hold an
individual EGS licence in order to provide voice services using numbers from
the national numbering plan, which is adininistered by'!CASA.
34 Section 37 of the EGA imposes a general obligation on licensees to provide
telecommunications services and persons who are exempted from the licensing
requirements to interconnect with other licensees. Interconnection is defined in
the ECA as "the physical or logical linking of two or more electronic
478
communications networks, electronic communications services, broadcasting
services, services provided pursuant to a licence exemption or any combination
thereof'. Electronic communications networks and services must be
interconnected in order for ca!ls that begin on one network, where a subscriber
dials a subscriber on another network, to be passed over to that other network.
The interconnection of networks and services allows subscribers on different
networks to call each other. Interconnection is, accordingly, a wholesale
service that is provided by licensed entities to each other to facilitate the
provision of off-net voice services to their subscribers.
35 ln the absence of an obligation to interconnect, established network operators
and service providers could simply hold other operators to ransom by refusing
to carry their calls unless they agreed to pay excessive termination fees. If the
operators did not interconnect, their subscribers would have no way of making
calls to the subscribers of other operators. This would make joining that
network highly unattractive. As such, it is absolutely essential that network
operators interconnect with each other. This is particularly important for smaller
operators.
36 On the basis of the interconnection obligatiori imposed by section 37 of the
EGA, licensees may request other licensees to interconnect with them. A
request to interconnect must be adhered to, provided that it is reasonable.
Where a licensee refuses to interconnect with another licensee or to negotiate
or agree on the terms and conditions of interconnection, the matter may be
~79
referred to ICASA. In terms of section 37(3} of the EGA, an interconnection
request will be regarded as reasonable where !CASA detennines that the
requested interconnection is technically and financially feasible and will
promote the efficient use of electronic communications networks and services.
37 The basis on which interconnection takes place is detailed in an
interconnection agreement between the interconnecting parties. In terms of
section 38 of the ECA, !CASA ls required to prescribe regulations to facilitate
the conclusion of interconnection agreements by stipulating interconnection
agreement principles. In this regard, !CASA published the Interconnection
Regulations, 2010 on 9 April 2010, attached marked "NB4". These
Interconnection Regulations repealed and replaced various interconnection
guidelines which were published by ICASA while the Telecommunications Act
103 of 1996 was in effect. (The Telecommunications Act was repealed and
replaced by the ECA, with effect from 19 July 2006). Regulation 15 of the
Interconnection Regulations details the various matters that interconnecting
parties must address in the interconnection agreements that they conclude.
These matters include "detailed charges per service provided' and
"mechanisms for review of charges".
38 In the absence of any further regulatory obligatio.ns, interconnecting parties
would be free to negotiate between themselves in relation to the rates that they
charge each other for carrying voice calls on their respective networks.
39 Section 41 of the ECA provides that ICASA may prescribe regulations
480
establishing a framework of wholesale interconnection rates to be charged for
interconnection services or for specified types of interconnection and
associated interconnection services taking into account the provisions of
Chapter 1 O of the ECA.
40 Chapter 1 O of the ECA deals with competition matters. In terms of section
67(4) of the EGA, !CASA is required to prescribe regulations defining relevant
markets and market segments in which pro~competitive conditions may be
imposed on licensees which have significant market power ("SMP~) where
!CASA .. determines that such markets or market segments have lneffective
competition. In terms of section 67(5) of the ECA, a licensee has SMP in a
particular market or market segment when ICASA finds that that licensee is
«dominanf', has control of essential facilities, or has a vertical relationship that
ICASA determines could harm competition in the market or market segment
applicable to the particular category of licence. The word "dominant is defined
for the purposes of the ECA in the same way that it is defined in the
Competition Act 89 of 1998. ln terms of the Competition Act, a firm is dominant
in a particular market if it has at least 45o/o of that market; it has at least 35%,
but Jess than 45o/o, of that market, unless it can sh_olf..'. that it d-oes not have
market power; or it has less than 35% of that-market, but has market power.
Market power is defined, in turn, as the "power of [a) firm to control prices, to
exclude competition or to behave to an appreciable extent independently of its
competitors, customers or suppfiers".
41 Section 67(7) of the ECA sets out a series of pro~competitive terms and
~~
481
conditions that may be imposed on licensees with significant market power in a
particula.r_market or market segment. However, ICASA is not limited only to
apply these remedies. Amongst the pro-competitive conditions that are
specified and that may be imposed by !CASA are "price controls~ including
requirements relating to the provision of wholesale and retail prices in relation
to the provision of access, interconnection and facilities leasing, or ECNS, ECS
or other services. As such, the pro-competitive conditions that !CASA may
impose on licensees where intervention is warranted includes setting wholesale
charges (such as call termination charges) and retail charges (such as the
charge~ that mobile operators charge subscribers for voice calls and other
services).
42 There can accordingly be no question that in enacting the 2014 Regulations,
ICASA was engaged in a policy-laden and polycentric decision in respect of
which Parliament considered that !CASA had specific expertise.
The objects of the ECA and the role of /CASA
43 Section 2 of the EGA sets out the various objects of that Act. ~he primary
object of the EGA is provide for the regU!ation of eleCtrOnic communications in
the Republic of South Africa in the public interest. This is the overarching
objective which ICASA has to take into account in. the performance of its
regulatory functions. Accordingly, where there is evidence that the prices paid
for communications services are higher in South Africa than they are in other
comparable countries, ICASA is bound to take action in the public interest to try
482
to remedy this situation through appropriate interventions. This is particularly
given the fundamental importance of communications services in allowing
citizens to exercise their right to freedom of expression as provided for in
section 16 of the Constitution of the Republic of South Africa, 1996 and to
participate fully in the economy of South Africa. ln this regard, the International
Telecommunication Union ("ITU"), which is the United Nations specialized
agency for information and communication technologies ("ICTs") has
recognised that ICTs underpin a huge range of activities. They help manage
and control emergency services, water supplies, power networks and food
dlstrib8lion chains. They support health care, education, government services,
financial markets, transportation systems and environmental management.
They also allow people to communicate with each other. Where citizens are
unable to access communications services because those services are
unaffordable, they are at a distinct disadvantage compared with those who are
able to access such services. This means that patterns of disadvantage
become more and more entrenched over time.
44 As has been recognised in the National Integrated ICT Policy Green Paper
which was published by the Minister of Communication~ on 24 January 2014,
while there are a number of mechanisms which are used to increase access to
communications services to consumers and poor consumers in particular,
including state-owned infrastructure and service providers, and funding from
the Universal SeNice and Access Fund, the provision of services by private
neDNork operators at appropriate prices is a very important driver for increasing
access and connectivity. state-owned ~
~ The regulation of such private and
4,83
providers is what ICASA was established to do.
45 The introduction of appropriate interventions to regulate prices is particularly
Important in the context of mobile and wireless services given that large
numbers of South Africans access communication.s services only through
mobile devices. While there is clearly a need also ·to extend access to fixed-
line services and !CASA is engaged in processes to facilitate this, the position
at present is that mobile and wireless services are often the only option for
consumers. The extensive penetration of mobile services in South Africa is due
in pl:irt, to the innovation and investment by the various mobile operators
operating in South Africa, including MTN and Vodacom. However, this cannot
detract from the fact that such services must be provided at affordable prices
and that, where competitive pressures do not constrain mobile operators from
charging higher than necessary prices, ICASA is bound to intervene to regulate
prices and to bolster competition in such a way that such price regulation
ultimately becomes unnecessary. Importantly, due to the nature of the radio
frequency spectrum that is, at present, used for the provision of mobile
seivices, there are a limited number of providers who can be licensed to build
the infrastructure over which such services are provid~d·. lt is inCumbent on
!CASA to ensure that the valuable spectrurTI--that has been assigned to the
various mobile operators is being used in an optimal fashion and in the public
interest because these licensees are the only entities which are ab!e at present
to provide such services.
46 The specific objects of the EGA, which ICASA must take into account when
484
performing its regulatory functions, include -
46.1 promoting the universal provision of electronic communications
networks and electronic communications services and connectivity for
all;
46.2 encouraging investmen~ including strategic infrastructure investment,
and innovation in the communications sector;
46.3 ensuring efficient use of the radio frequency spectrum;
46.4' ·promoting competition within the ICT sector;
46.5 promoting an environment of open, fair and non-discriminatory access
to broadcasting services, electronic communication net-Narks and to
electronic communications services;
46.6 ensuring the provision of a variety of quality electronic c_ommunications
services at reasonable pn·ces; and
46.7 promoting the interests of consumers with regard to the pn'ce, quality
and the variety of e!ectronic communications services.
International ob/igat;ons
47 In performing its regulatory functions in terms of the ECA, !CASA as an organ
of state is also bound to take into consideration the various international
obligations of the Republic of South Africa and certain international agreements
·~)?
485
that affect the domestic regulation of the telecommunications sector in South
Africa. ln the paragraphs below, I briefly discuss these international
agreements and set out what South Africa's obligations are in regard to these
agreements.
48 The World Trade Organization ('WTO") was established in 1994. !ts function is
to facilitate the implementation, administration and operation of certain
multilateral trade agreements. The General Agreement on Trade in Services
("GATS") is the primary WTO agreement that establishes a framework for
interhational telecommunications law.
49 The GATS comprises a number of fundamental "general obligations and
disciplines" with which all member countries are required to comply from the
moment the agreement entered into force~ These general obligations and
disciplines are then supplemented by specific commitments accepted by each
member country in a Schedule of Specific Commitments.
50 The GATS was signed by South Africa on 15 April 1994 and ratified by
Parliament on 6 April 1995. South Africa's offer on basic telecommunications
became part of fts Schedule Of Specific Commitments under the Fourth
Protocol to the GATS when this protocol entered into force on 5 February 1998.
This agreement is commonly known as the ~asic Agreement on
Telecommunications or the GATS Fourth Protocol ("the Basic Agreement on
Telecommunications") and it effectively embodies the WTO members' efforts to
introduce global competition in telecommunication services, liberalisation and
486
open markets.
51 Three documents make up the core of trade in telecommunications services
and are crucial to interpreting the GATS genera! obligations and specific
commitments. These documents are (i) the Annex on Telecommunications, (ii)
the Fourth Protocol on Basic Communications and (iii) the Reference Papers
on Regulatory Principles ("the Reference Paper"). ! deal primarily with the
Reference Paper as it represents the regulatory component of the Basic
Agreement on Telecommunications.
52 South Africa has adopted, in whole, the tenns of the Reference Paper. Jn
essence, the paper embodies a set of negotiated definitions and principles on
the regulatory framework governing the provision of basic telecommunications.
The principles primarily address particular objectives for the establishment of a
pro-competitive regulatory regime.
53 In terms of competition law, the Reference Paper defines a "major supplier'' as
a "supplier which has the ability to materially affect the terms of participation
(having regard to price and supply) in the relevant market for basic
telecommunications services as a result of (a) control-over essential facilities or
(b) use of its position in the market."
54 The first two substantive issues addressed in the Reference Paper concern the
controls to be placed on the ability of a major supplier to be able to restrict
competition.
~87
55 The first issue requires member countries to maintain "appropn·ate measures"
to prevent a major supplier from engaging in, or continuing to engage in, anti
competitive practices including anti-competitive cross-subsidization, improper
use of information obtained from competitors and withholding technical and
commercially relevant information about essential services.
56 The second issue relates to interconnection. Interconnection is defined in the
Reference Paper as the "linking with suppliers providing telecommunications
transport networks or setvices in order to allow the users of one suppfier to
comlnunicate with users of another supplier and to access services provided by
another supplier." The Reference Paper requires that interconnection with a
major supplier be (1) provided on request, (2) equitable and non..cfiscriminatory
in terms of quality, (3) provided at technically feasible points in the network, (4)
timely and on reasonable terms and conditions, (5) cost-orientated and
sufficiently unbundled so that new entrants to the market are not paying for
unnecessary network components and facilities. In addition it requires that both
the procedures for interconnection and any concluded agreements of major
suppliers be publicly available.
57 A copy of the Reference Paper is attached mar~ed "NBS"
58 It is important to note, that as a signatory to the Basic Agreement on
Telecommunications, the Republic of South Africa is obligated to implement its
Schedule of Commitments (incorporated into which are the terms of the
Reference Paper). Any violation is subject to determination under the dispute
488
resolution mechanisms of the WTO.
The background to the publication of the Call Termination Regulations, 2014
59 The high cost of communications in South Africa is an issue which has received
significant attention in the media, from government, from research
organisations and from the general public. Various studies have been done by
research organisations which. show that retail prices for communications
services in South Africa are comparatively high in relation to a number of other
African countries and countries in other parts of the world. For example, I
attach,''marked "NBS" a chapter from a 2012 policy paper prepared by research
organisation Research ICT Africa ("RIA") titled "Understanding what is
happening in ICT in South Africa". As reflected in the tables in this chapter,
prices and particularly prices for prepaid products which are used by poorer
consumers, are much higher in South Africa than in other African countries.
The high cost of communications in South Africa has also been r·ecognised as a
cause for concern in the National Integrated ICT Policy Green Paper which was
published by the Minister of Communications on 24 January 2014.
60 As I explain in further detail below, given that one of. ~h~ input costs in relation
to retail rates for voice call services and, in particular, off-net retail rates, is the
cost to terminate calls on other networks, one of the areas that is important to
address when seeking to bring down retail charges is the level of call
termination rates.
61 In addition to retail rates for telecommunications services (being the prices that
489
consumers pay) being higher than in similar countries, call termination rates are
also higher in South Africa than they are in similar countries. In this regard, !
attach another chapter from the Research ICT Africa policy paper l referred to
previously (attached as "NB7") in relation to wholesale pricing, including call
termination rates.
62 As MTN has outlined in its founding affidavit (at paragraph 30), different call
termination rates applied at different times to the various mobile operators
operating in South Africa. At the time when MTN and Vodacom commenced
oper'ations in August 1994, the reciprocal call tennination rate that they paid
each other was R0.20 per minute for peak time calls and R0.10 per minute for
off-peak calls. When Cell C commenced operations in 2001, the call
termination rate that was payable by each of MTN, Vodacom and Cell C to
each other for off-net calls carried on their respective networks had increased
to R1.23 per minute for peak time calls and R0.73 for off-peak calls. This was
an increase to the peak rate of more than 500°/o.
63 !n the absence of price controls in relation to wholesale call termination rates,
these rates are unlikely to be decreased by dominant mobile operators of their
own accord because they have no incentive to_ do so. As appears from MTN's
discussion of ea!! termination rates, over the years that MTN has been in
operation, call termination rates in fact increased significantly from the levels at
whlch they were first set even though the cost of call termination will generally
come down over time.
490
64 The question of high communication costs in South Africa and, specifically, the
issue of high call termination rates has been an issue which ICASA has been
concerned with for many years.
65 ICASA first began a r~view of high mobile prices in 2005 following a complaint
from the Communications User Association of South Africa ("CUASA"} with the
publication of a discussion document on 28 July 2005 in terms of the
Telecommunications Act, which was then in effect. CUASA's complaint related
to, and !CASA was requested to investigate, amongst other things, the cause of
the high cost of mobile calls in South Africa in general, why the Introduction of
competition (with the introduction of Cell C) in the mobile market had not
reduced call costs,
66 In 2007, JCASA began the process of addressing high ca!I terminatlon rates in
South Africa with the publication of a notice of its intention to define relevant
wholesale call termination markets in terms of section 67(4) of the ECA on 29
January 2007. !CASA published a findings document on 9 November 2007.
Pursuant to these findings, ICASA then developed draft interconnection
regulations in July 2009 for public comment, which ultimately became the
!nterconnection Regulations which were publis_hed in 2010. The intention was
that !CASA would also publish separate regulations specifically dealing with call
termination rates.
67 In the interim, the question of call termination rates had been receiving
significant attention from the Parliamentary Portfolio Committee on
491
Communications, which is the parliamentary oversight body in respect of
!CASA and the Department of Communications. On 14 September 2009, the
Portfolio Committee received a briefing from !CASA, the Competition
Commission and the Department of Communications on the possible reduction
of high interconnectivity rates in South Africa. This was followed by public
hearings on 12 and 13 October 2009 on lowering cell phone interconnection
rates, followed by a further briefing by ICASA on 23 October 2009.
68 !CASA published draft call tennination regulations on 16 April 2010 ("the draft
201d regulations") for public comment. ln these draft regulations !CASA first
sought to define call termination markets in which ICASA sought to impose pro-
competitive conditions and to provide for the various pro-competitive conditions
to be imposed. The draft ca!l termination regulations provided for a progressive
reduction in call termination rates between July 2010 and July 2012 from R0.65
for mobile and R0.15 for fixed in July 2010, to R0.50 for mobile and R0.12 for
fixed in July 2011, to RD.40 for mobile and R0.1 O for fixed in July 2012.
Interested parties were invited to comment on the draft regulations and public
hearings were convened from 28 June 2010 to 30 June 2010
69 ICASA then published the 2010 Regulations. !n the 2010 Regulations, ICASA
detennined that
69.1 competition in the mobile and fixed wholesale voiCe call termination
markets is ineffective;
69.2 every licensee that offers wholesale voice ca!I termination services has
492
significant market power in respect of its own network; and
69.3 various market failures had been identified, being a lack of the provision
of access; the potential for discrimination between licensees offering
similar services; a lack of transparency; and inefficient pricing.
70 To address these market failures, ICASA imposed various pro-competitive
conditions. In terms of regulation 7(2), all licensees who provide wholesale
voice termination are required to comply with certain pro-competitive
conditions. These are: complying with the Interconnection Regulations,
complying with the JCASA Compliance Procedure Manual Regulations
(subsequently adopted in 2011) and charging fair and reasonable prices for
wholesale voice call termination in accordance with the principles set out in
Appendix B.
71 In addition, the 201 O Regulations imposed specific additional pro-competitive
conditions on certain licensees, namely MTN, Vodacom and Telkom. In terms
of regulation 7{3), these conditions were imposed on the basis that these
licensees had historically benefitted from the allocation of more efficient lower
band spectrum; and that the licensees b_enefitted fron:i economies of scale and
scope in maintaining a share of total minutes terminated in the respective
markets of greater than 25o/o as of June 2009.
72 These additional conditions are:
72.1 to publish a Reference Interconnection Offer ("RIO") on the basis of the
4i93
principles set out in Appendix A to the 201 o Regulations (regulation
7(5)(a)). A RIO sets out the standard terms and conditions on which
interconnection is offered to any person seeking to interconnect with the
relevant licensee;
72.2 to comply with cost-oriented price controls limiting the charges that the
licensees may charge for call termination (regulation 7(5){b)); and
72.3 to submit regulatory financial reports in a format to be prescribed by
!CASA (regulation 7(5)(c)).
73 In regu0
lation 7(5)(b) of these 2010 Regulations, !CASA provided that MTN and
Vodacom had to 2fil:'. call termination rates as follows:
73.1 from 1March2011, R0.73 peak and R0.65 off-peak;
73.2 from 1 March 2012, R0.56 peak and R0.52 off-peak; and
73.3 from 1 March 2013, R0.40 peak and R0.40 off-peak.
74 Licensees were not bound to charge the rates specified in the 2010
Regulations and could negotiate regarding the rates that they charged each
other but were not permitted to charge.above the ra_te~ specified in the 2010
Regulations. As such, to the extent that a licensee's cost of call termination
was actually below the rate specified in the 2010 Regulations, there was no
reason that a licensee could not charge that lower rate.
75 Appendix B to the 2010 Regulations provided that licensees other than MTN
and Vodacom could charge different rates from those which MTN and
494
Vodacom were allowed to charge, being the rates set out above. In this regard,
if a licensee could show that it was adversely affected by its spectrum al!ocation
or had less than 25% of total terminated minutes in the relevant market as of
June 2009, the licensee was permitted to charge higher call termination rates
than those charged by MTN and Vodacom. On the basis that the rates charged
by some licensees are higher than the rates charged by other licensees, the
call termination rates are described as "asymmetric".
76 Paragraph 2 of Appendix B provided that licensees which fell into this category
and Qualified to charge asymmetric call termination rates could charge -
76.1 20o/o more than the MTN and Vodacom rate for the period from 1 March
2011 to 28 February 2012 i.e. R0.876 for peak calls and R0.78 for off-
peak cans;
76.2 15%i more than the MTN and Vodacom rate for the period from 1 March
2012 to 29 February 2013 i.e. R0.644 for peak calls and R0.598 for off-
peak calls; anJ
76.3 1 QOfc, more than the MTN and Vodacom rate for the period from 1 March
2013 i.e. R0.44 for peak and off-peak calls.
77 In regulation 8 of the 201 O Regulations, ICASA indicated that it would review
the wholesale call termination regulations, the effectiveness of competition in
those markets and the pro-competitive conditions imposed under the 2010
Regulations so that they could be replaced when they were due to expire in
February 2014.
495
78 Given that the first call termination rate regulation was imposed as from 1
March 2011 and that the 2010 Regulations provided for progressive reductions
in call termination rates until 1 March 2013, ICASA commenced with a process
to examine the wholesale call termination markets in 2013 with a view,
potentially, to imposing new call termination rates on licensees as from 1 March
2014. 1 March 2014 was three years from the date that call termination rates
were first regulated and call termination rates imposed.
79 Jn 2011, ICASA had undertaken to the Parliamentary Portfolio Committee on
Com'm_unications that it would monitor the impact of the 201 O Regulations and
report to the Committee on a bi-annual basis regarding reductions in call
termination rates.
80 The Parliamentary Portfolio Committee convened further hearings on the cost
to communicate in South Africa as follows: in Cape Town on 29 and 30
November 2012, in Gauteng between 22 and 25 July 2013, in the Eastern
Cape on 29 and 30 July 2013, and in KwaZulu-Natal on 31 July and 1 August
2013. 43 stakeholders, including the Department of Communications, ICASA,
MTN, Vodacom, Cell C and Telkom made presentations at the hearings.
Representatives from the Department of Cor:imunications indicated that the
Department had commissioned a peer benchmarking study of Brazil, Chile,
Korea, India and Malaysia. The results of the study indicated that South Africa
had a more concentrated mobile market, and wholesale fixed and mobi!e call
termination rates were expensive. Most stakeholders were in agreement that
the cost to communicate in South Africa is too high and is higher than in other
496
comparable countries. One of the problems that was identified as a cause of
high costs for voice services was call termination rates and insufficient
regulation of these rates.
81 At the public hearings, !CASA made three specific proposals on the way
forward to reduce communications costs. These included a value-chain market
review which incorporated a cost model for the voice value chain.
82 The proposals and submissions that were made by various interested .parties
inclu,ded that interconnection and retail rates should be regulated
(Right2Know); call termination rates should be reduced to the costs incurred by
an efficient operator (Research ICT Africa, 8ta (Telkom Mobile), Telkom); call
termination rates should be regulated (Communication Workers Union); the
asymmetrical call termination rates introduced by !CASA in 2010 have had
marginal impact (Internet Solutions); and the asymmetric rate afforded to Cell C
and other small operators is simply not high enough to address imbalances in
payments between the operaCors (Cell C).
83 While the Parliamentary Portfolio Committee was conducting its cost to
communicate hearings, !CASA initiated its own· cost to communicate
programme in June 2013. The overall goal of the programme is to achieve fair
and reasonable prices for consumers. ICASA's notice initiating an inquiry in
terms of section 48 of the ICASA Act is attached as annexure ZB3 to MTN's
founding affidavit. As appears from this notice, ICASA intended to pursue a
comprehensive programme aimed at reducing communication costs for
4i97
consumers. !CASA identified that, compared with other countries, including
other African countries, communications costs and in particular mobile tariffs,
are very high.
84 There are five pillars comprising the cost to communicate programme of which
a call termination market review is only one. ICASA's intention is to
systematically work through al! the areas where it is perceived that market
failures exist which are leading to or which influence high consumer prices so
as to ultimately determine whether specific intervention is necessary.
85 The notice initiating the cost to communicate programme indicated that ICASA
intended to review the 2010 Regulations. The notice indicated that revisions
would not be made to either the market definitions in the 2010 Regulations (i.e.
that markets are categorised in terms of the service provided to end-users and
comprise of (1) the market for wholesale voice call termination services to a
mobile location on the network of each licensee who offers such a service
within South Africa and (2) the market for wholesale voice call termination
services to a fixed location on the network of each licensee who offers such a
service within South Africa) and determinations of SMP.
86 lCASA published a call termination questi6~naire · for completion by all
licensees who provide wholesale voice call termination_ on 10 June 2013 ("the
2013 questionnaire"). After receiving and analysing the responses to this
questionnaire and taking into account the licensees' engagement with ICASA,
ICASA published draft cal! termination regulations for public comment on 11
498
October 2013 ("the draft 2013 regulations~). As l deal with in further detail
elsewhere in this affidavit, all licensees who responded to ICASA's invitation to
participate in one-on-one meetings were then given an opportunity to meet with
!CASA on a one-on-one basis.
87 The 2013 draft regulations provided for further proposed reductions to the call
termination rates charged by MTN and Vodacom. ln addition, they provided for
an asymmetric call termination rate to be charged by mobile operators which
were adversely affected by their current spectrum allocations and which had
less 'than 20% of the tota! terminated minutes in the relevant market as of
December 2012. The asymmetric rate glide path, being the progressive
reduction in the rate that smaller operators which qualified to charge an
asymmetric rate were able to charge, was set over a period of six years from 1
March 2014 to 1 March 2019.
88 !CASA received written submissions on the draft 2013 regulations from 14
interested parties, including MTN and Vodacom. After taking these
submissions into account together with the representations made by interested
parties at their one-on-one meetings with ICASA, !CASA made certain
amendments to the draft 2013 regulations. ~he final 2014 Regulations were
placed before ICASA's Council and approved by the Council on 28 January
2014.
89 The 2014 Regulations were published in the Government Gazette on 4
February 2014.
499
THE QUESTION OF A PRIMA FACIE RIGHT
90 l am advised that for the purposes of Part A of the applications by MTN and
Vodacom this honourable Court will consider the merits of the grounds of
review only insofar as it is requfred to consider whether they have shown a
prima facie right to the relief they seek in Part B of the applications.
91 Moreover, it is important to reiterate that the 2014 Regulations do not set only
one termination rate to apply in perpetuity. They contain a number of different
rates, to apply to the various mobile operators at different times. The main
periods are:
91 .1 1 April 2014 to 31 March 2015;
91.2 1 April 2015 to 31 March 2016; and
91 .3 1 April 2016 to 31 March 2017.
92 I submit that in Part A of this application, all that should concern this Court is
whether MTN and Vodacom have established a prima facie riglit to the relief
they seek in Part B in respect of the first of these three years - that is 1 April
2014 to 31 March 2015. This is because it is only complaints about the regime
that is to come into force on 1 Apri! 2014 that could possibly provide a basis for
the urgent interim interdict now sought.
93 Insofar then as a substantial number of MTN and Vodacom 1s complaints are
~00
directed at the regulatory regime which will commence only in 2015 or 2016,
they are not relevant to the determination of this application.
94 ln addition, given that these applications have been brought on an urgent basis,
it has not been possible for me to prepare a full response to the allegations in
the founding affidavits on the grounds of review. What is set out here is
intended only as a summary to assist the Court in assessing whether either
MTN or Vodacom has shown a prima facie right to the relief it seeks.
95 I respectful!y submit what is set out demonstrates clearly that neither has done
so.
96 ln what follows 1 deal first with the procedural and ultra vires attacks on the
2014 Regulations and then the substantive attacks on the 2014 Regulations.
THE PROCEDURAL FAIRNESS AND ULTRA VIRES ATTACKS ON THE 2014 REGULATIONS
lntroduct;on
97 I now turn to set out the process followed by !CASA in the adoption of the 2014
Regulations and the procedural fairness and ultra vires challenges raised by
MTN and Vodacom to the process followed by !CASA ln adopting the
regulations.
98 As I will demonstrate in this section, the process followed was both lawful and
§01
procedurally fair. The content of the proposed regulations was the subject of
continuous evaluation and re-evaluation by ICASA and in particular its Markets
and Competition Division throughout the process. This reflects the seriousness
with which ICASA viewed the exercise that it was undertaking and the extent to
which it sought to consider and take account of the input that was received from
stakeholders at various stages.
99 In summary, and without intending to limit the legal arguments that ICASA may
advance at the hearing of the matter, !CASA's response to the procedural
fairness and ultra vires attacks are as follows:
99.1 Prematurjty. ICASA did not act prematurely in the first half of 2013 when
its staff commenced the process of gathering information and
considering the need for !CASA to adopt regulations to replace the 201 O
Regulations, which were due to expire at the end of February 2014. The
contention to the contrary is based on an unsustainable interpretation of
regulation a of the 2010 Regulations which would have an absurd result
and, even if correct, would constitute improper fettering of ICASA's duty
to properly exercise its powers and perform its functions.
99.2 !CASA "started afresh". It was specifically stated at the start of the
process (in the "cost ta communicate" doCument released in June 2013)
that the "scope" of the "review" was "limitedn to section 67(8) of the EGA
but that it would "not consider revisions of either the market definitions
or SMP determinations as these will not have changed'. It was clear
from this that
~02
99.2.1 ICASA (in terms of section 67(8){a)(i) of the ECA) took the view
that there was no reason to suppose that the market
determinations made in the 2010 Regulations had changed;
99.2.2 section 67(B)(b) of the EGA was not relevant because ICASA
took the view that there was no reason to suppose that the
SMP determinations made in the 2010 Regulations had
changed; and
99.2.3 the review process would therefore be limited to sectlon
67(8)(a)(ii), read with section 67(8)(c) to the extent applicable.
99.3 Non-provision of data by !CASA and failure to consult in relation to the
appropriate mode{. It was unnecessary for ICASA to provide any
additional information or consult any further than it did. This is because:
99.3.1 both MTN and Vodacom at all times declined (and continue to
decline) to demonstrate what their actual termination costs
were, despite persistently being asked by ICASA to provide the
relevant information. This would have enabled ICASA to have
developed and applied a new, more. robust, termination cost
model;
99.3.2 both MTN and Vodacom knew what data JCASA had in its
possession that could be relevant to determining termination
costs and that !CASA was using that data to apply the same
§03
method that it had used to determine the termination rates set
in the 2010 Regulations;
99.3.3 The method that ICASA sought to utilise in determining
proposed termination rates was precisely that which had been
suggested:
(a) by MTN when it stated in response to question 1 e in
section F of the 2013 questionnaire: " •••••••
···········-·";and (b) by Vodacom in its written submissions on the draft 2013
regulations when it recognised that ICASA had not
developed and utilised a cost model such as the one
envisaged in the 2010 Regulations and suggested that
ICASA should " .. impose reasonable interim rates while fitT
proceeds with thorough consuftation" on a more detailed
model; and
99.3.4 ICASA did not set the asymmetric rates and glide path on the
basis of any "data", other than the fact that a review of the
market in 2013 showed that there were marked differences in
the sizes of the four mobile operators, and so imposing the
same glide path on each of them would not be appropriate.
§04
99.4 The one-on-one meetings and alleged absence of opportunity to be
heard. The holding of one-on-one meetings resulted in a more
meaningful opportunity for the licensees to be heard than would have
been the case in public hearings. Apart from these meetings, !CASA
offered the applicants multiple opportunities (including the opportunity to
make detailed written submissions), to engage with it and provide
relevant information upon which the decision could ba made. Instead,
they declined to provide information when requested to do so.
99.Si JCASA should have consulted in relation to the "significant" change
between the 2013 draft regulations and the f;nal 2014 Regulations in
relation to asymmetric rates and the market share measure that would
be used to determine their apolicabilitv. In this regard:
99.5.1 The difference between the maximum asymmetric rates in the
2013 draft regulations and the final 2014 Regulations was not
"significant" when considered in the context of their actual
effect on the licensees' termination revenues.
99.5.2 The level and duration of asymmetry adopted by _!CASA in the
final 2014 Regulations fe!I wit~in the range of proposals made
by the various stakeholders in response to the 2013 draft
regulations, both in relation to duration and extent.
99.5.3 Any reasonable reader would understand that the term "retail
revenue market share", when used in the current context,
refers to share of revenues from mobile voice telephony in
~iP
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South Africa. The licensees were aware that they had been
asked in the 2013 questionnaire to provide Information
regarding their retail voice revenues. Neither MTN nor
Vodacom suggests that this measure is not appropriate for the
purposes for which it is employed. In any event, the change
had no actual effect on JCASA's determination of the operators
to whom asymmetry would apply.
/CASA 's early requests for firm·specffic. information from licensees
100 On 9 d'ctober 2009, !CASA released a questionnaire (annexure "NBS") seeking
information to enable to evaluate the effectiveness of competition in the call
termination market (~the 2009 questionnaire"). Jn question 6 of section B of the
2009 questionnaire, licensees were requeste.d to provide their audited financial
statements for the years 2004 to 2008. This information was provided by both
MTN and Vodacom in their responses.
101 ln question 3a of section G of the 2009 questionnaire, licensees were asked
"what is the impact of direct interconnection on your casts"? Vodacom
answered this question in general, non-quantitative te'.m~ and with6Ut reference
to any actual costs of termination. MTN declined to give any response at all.
102 !n question 7 of section G of the 2009 questionnaire, licensees were asked "If
your company could unilaterally raise termination charges by 10% from the
current level, what would the impact be on .. any dimensions of the business
(please specifyy? Licensees were also asked to explain their answers "using
§06
quantitative evidence if avaHable."
103 Although the answers provided to this question would a!so assist !CASA to
determine appropriate wholesale call termination rates (because they would
give an indication of the extent to which wholesale call termination rates might
affect call costs in the retail market), it is noteworthy that MTN did not take the
opportunity to explain the effect of a change in termination rates on its
businesses in quantitative terms, much less indicate what its true costs of
termination were. Similarly, Vodacom avolded answering this question by
rejeCting the assumption upon which it was based, claiming that it would not be
able to unilaterally raise termination charges.
104 On 8 March 2010, and in the context of the limited information that had been
provided in response to the 2009 questionnaire, !CASA released "guidelines for
conducting market reviews", the purpose of which was stated in paragraph 1.1
of the guidelines as being "to provide stakeholders with an outline as to how the
Authon'ty intends to implement the provisions encompassed in the EGA aimed
at enhancing competition". A copy of the guidelines is annexed marked "NB9".
Of particular relevance for current purposes is paragraph 4 of the document,
which identifies ICASA's "information requirements to complete market reviews"
and in terms of which the telecommunications industry, including MTN and
Vodacom, was advised inter alia that "[t]he Authority may require firm-specific
infonnation in order to ensure that an evidence-based decision is made" and (at
paragraph 4.1) that
§07
"The Authon"ty may base its decisions on publicly available information, information obtained through specific requests to licensees or a combination of the two. It is in the interest of afl parties to co-operate with the Authority in order to ensure that sound regulatory decisions are made."
105 The industry was also advised (at paragraph 4.2) that:
"The accuracy of defining and analysing markets depends to a large degree on the timely provision of market information as well as the accuracy and reliability of the information provided.
The Authority will from time to time ref ease questionnaires in order to make up-to-date evidence-based decisions. Licensees are typicalfy required to provide such information within 30 business days of the request for information''.
106 Finahy;,the document noted at paragraph 4.3 that
"The Authority is committed to ensuring .a co-operative and continuous dialogue with licensees' appointed contact persons regarding the coffection of market information.
Such a dialogue will initially be by letter, with further meetings and fora on a licensee and stakeholder basis arranged where deemed necessary"
107 In a media release issued on the same day (annexure "NB10"), ICASA
specifically asked licensees to "take note of Section 4 (Information needs) of
the guide and start preparing your data systems such that we can work
together to efficiently achieve the mandate of the ECA".
108 ln paragraph 11 of the 201 O draft regulations (annexure V2 to Vodacom's
founding affidavit), it was proposed that licensees would be required to submit
bi-annual market reports to JCASA in the format provided for in annexure B
thereto as well as "any other information pertaining to the analysis of the Call
termination markets that may be requested by the Authority fron1 time to time
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109 The explanatory memorandum to the 2010 draft regulations consisted of the
Market Review that had been compiled by !CASA and had the following
relevant features:
109.1 ICASA noted that "for the period of this review, the Authority will use
existing cost accounting data complemented by relevant international
benchmarks of the cost of fixed and mobile calf termination to determine
the efficient charge levef' (page vii of the executive summary);
109.2 ICASA also stated that it would (in addition to information that may be
:'required in terms of regulations to be promulgated) "additionally
require ongoing information from the various licensees in order to
monitor the development of the market and have sufficient Information
at its disposal at the time of the next revieW' (page3 vii - viii of the
executive summary);
109.3 ICASA indicated that the information used to evaluate the effectiveness
of competition was that collected by means of the 2009 questionnaire
(paragraph 2.1);
109.4 ICASA indicated that in the absence of effectil(e _supply or- demand side
substitutes in the call termination market and the inelastic demand for
voice call termination caused by the Calling Party Pays (CPP) principle,
there were insufficfent incentives on licensees to reduce their wholesale
call termination charges to an efficient level (paragraph 3.3.1 );
109.5 In particular, it was noted that "above-cost call termination leads to
§09
distortions ... such that the ... prices do not reflect underlying resource
costs (which is the economic outcome expected in competitive
markets)" and that "[a]nalysis of operator data submitted to the Authority
through the questionnaire identifies substantial differences between the
on-net and off-net weighted average retail charge" (paragraphs 3.3.2.1
and 3.4.3.2.5);
109.6 ICASA indicated that its intention was to "ensure that prices and
margins are reduced to a level that covers the cost of efficiently incurred
.. capital, as woufd be the case in a competitive markef' (paragraph
3.4.1);
109.7 JCASA noted that although the obligations of licensees to submit
regulatory accounts under the Chart of Accounts and Cost Allocation
Manual CCOA/CAM") Regulations under the Telecommunications Act
had lapsed, !CASA may "impose additional obligations further to a
Market Review in terms of Chapter 10 of the EGA" (paragraph 3.4.1.1);
109,8 ICASA indicated that the pro-competitive remedies to be imposed
included the imposition of a "wholesale price control obligation, where
termination rates must be fair and .reasonable, but specific cost-
orientated rates are set for established licensees" (paragraph 3.4.3.2);
109.9 !CASA intended to "introduce a whofesale price control regime that
encourages 'fair and reasonable' pricing by all licensees and directly
targets estabHshed SMP licensees' pricing policies and practices by
ensuring cost-orientation of wholesale call termination prices"
~·~~ ~
§10
(paragraph 3.4.3.2.5);
109.10 ICASA "is not intending to build a cost model as part of the current
market review'! and "in the absence of a specific costing model" it
"intends to apply an alternative approach to gain insight on the costs of
wholesale call termination rates in South Africa. This approach consists
of a detailed review of the regulalof'/ financial reports ("RFR'~ prepared
by MTN, Telkom and Vodacom under the COAICAM regulatory
obligations and prepared based on FAG and GCA approaches. This
.,anafysis is complemented by international benchmarking of ~ong-run
incremental cost ("LRIC")J based wholesale calf termination rates in
other relevant jurisdictions" (paragraph 3.4.3.2.5);
109.11 In !CASA's conclusion on "pro-competitive measures", under the
heading "addirionaf obligations" for "promoting competition" (paragraph
3.5.1.2) !CASA clearly stated that while it would in due course be
seeking to implement regulatory accounting requirements .
"In the short and medium term, the Authority will use existing cost accounting data complemented by relevant international benchmarks of the cost of fixed and mobile call termination to determine the efficient charge level._ The detailed approach to the irilposition of whofesale price controls is discussed in Appendix A." [underlined emphasis added]
109.12 In paragraph 1.3.1 of annexure A, it was noted that
cost orientation is best achieved using information obtained through a cost model. The Authority has to date not created a cost model, however, similar information has been obtained from the fixed and mobile licensees through RFRs submitted in compliance with CONCAM regulations. Such RFRs submitted using the Current Cost Accounting standard provide sufficient cost information for the Authority to assess the cost base of the mobile and fixed licensees. ~
xP
§11
Thus cost orientation using cost information is feasible in South Africa immediatefv. A cost model, using a methodology such as LRIC, could subsequently be created and its findings applicable for the next review." [underlined emphasis added]
110 In Annexure A, ICASA also stated that the results derived from RFRs could
(and had been) be "sanity checked" by means of international benchmarking. lt
was also noted that benchmarking alone might be a valid approach to setting
termination rates, as had been done in Botswana, Namibia and New Zealand
and that the "Namibian Interconnection Benchmarking Study" noted that "a
LR!C study using international bes_t practice is likely to get similar or even lower
results~~. !CASA further noted that "any of the Namibian licensees could request
a review of termination rates by demonstrating that its fo1Ward-Jooking long-run
incremental cost of termination exceeds the proposed ceWng'' (Annexure A,
paragraph 1.3.2, "Box 1 ")
111 !CASA confirmed in paragraph 1.3.5 of Annexure A that -
" ... taking into account the infonnation available to the Authority at this point in time, [t]he Authority has decided to use a combined approach ... to determine the efficient charge level - cost orientation using available cost infonnation coupled with benchmarking as a cross reference.
The Authority has decided that the best way fotward in implementing price controls is to use the information oblf!infJd from the Regulatory Financiaf Reports submitted in terms of the Chart of Accounts and Cost Allocation Manual (COA!CAM)"- to arrive at the efficient charge in South Africa. Regulatory Financiaf. rePorts in terms of COA!CAM have been submitted by Vodacom, MTN and Telkom. In arriving at the efficient charge level the Authority has reviewed the Regulatory Financial Reports submitted for the year to December 2007by MTN and Telkom, for the year to March 2008 by Vodacom.
In the case of Cell C, which was not required to submit formal Regulatory Financial Reports as per the COACAM regulations, published statutory accounts are available and form the basis of the analysis undertaken. To permit comparison with the analysis for
§12
Vodacom and MTN, Cell G's accounts for the year ending 2007 have been used.
The Regulatory Financial Report analysis is supported in some instances by information provided by licensees in response to the Industry Data Questionnaire such as disaggregated traffic and wholesale and retail revenue. Finafly, benchmarking data has been used to provide a 'sanity check' for the Authority to ensure that the Authority's chosen approach produces res4fts that would reasonably be expected in other jurisdictions."
For future review periods, the Authority will use information obtained as a result of cos!: modelfing and derived through the imposition of the cost accounting and accounting separation obligations in terms of the regulations arising from this market review to inform the efficient charge. The Authoritv may also undertake specific additional cost modelling of licensees call termination costs to inform future determinations of rates where necessaN. The Authoritv also intends putting in place regular reporting requirements for licensees. including at a minimum annual financial statements."
111.1 !CASA furthermore noted that during the period of operation of the 2010
Regulations, ,. :he Authority or the licensees, or both, could undertake
detailed cost modelling in order to understand more fully the correct and
appropriate inputs to a cost based termination rate." (Annexure A,
footnote 88).
112 At the time of the publication of the 2010 draft regulations, !CASA issued a
media statement (annexure "NB11") in which noted that the proposed
regulatory reporting format would "be similar to that of the old COA!CAM
regulations".
113 It was therefore fully apparent to al! licensees from the explanatory
memorandum to the 201 O draft regulations that their COA!CAM accounting and
the answers that they had provided to the 2009 questionnaire had informed the
g13
decisions of !CASA in relation to the setting of the mandatory mobile call
termination rates. lt was also apparent to them that, should they wish to
challenge the set pricing, they could always provide the relevant actual cost
information in order to show that the regulated rates were not sustainable.
114 The 2010 Regulations were published on 29 October 2010. Their only relevant
feature for the purposes of MTN and Vodacom's challenges to the procedural
fairness of the 2014 Regulations was the statement in regulation 8 that !CASA
"will review the wholesale voice termination markets to which these regulations
appljt, ,-as weff as the effectiveness of competition and the application of pro-
competitive measures in those markets, after a minimum period of three (3)
years from the publication of these regulations".
115 The explanatory memorandum to the 2010 'Regulations sets out the reasons
why ICASA had decided to deviate from the draft 2010 regulations and their
explanatory memorandum in various respects. The final version, however,
contained no indication that the position set out in the draft in relation to the
information to be utilised to set mobile termination rates would be applied in the
future.
Cell C's request to suspend the 2010 RegulaUons.
116 In planning its strategy and work plan for the 2013/2014 financial year, the
Markets and Competition Division of ICASA under the leadership of Pieter
Grootes, its General Manager and Councillor William Stucke ·was well aware
that it would be necessary to prepare for the adoption of further call termination
514
regulations to replace the 2010 Regulations which would only apply until 28
February 2014.
117 On review, it became clear to ICASA that if costs of termination were calculated
on a LRlC basis then the termination rates under th~ 2010 Regulations were
still considerably above the likely cost of providing that service. lt was also clear
that Cell C and Telkom Mobile had not yet achieved comparable economies of
scale to MTN and Vodacom. The difficulty faced by ICASA in considering the
precise level of a new base termination rate and the glide path to reach that
rate Was that it had access to little quantitative information regarding the actual
costs of termination, the role that termination charges play in relation to the call
prices set by operators, and how such charges and different glide paths might
affect the levels of competition in the retail market.
118 Jn the light of this lack of information, the Markets and Competition Division
initially intended to propose to JCASA that, before undertaking the ordinary
regulatory process of proposing the new termination rate glide path and
termination rates that would apply with effect from 1 March 2014 and then
engaging with stakeholders on the basis of a severe informational. imbalance,
ICASA should conduct a review of the 2010 _Regulations in line with section
67(8) of the ECA so as to gather as much relevant and detailed information
regarding wholesale mobile call termination rates as possible. This would
enable !CASA to be able to meaningfully engage with stakeholders during the
consultation process. It was intended that this would be done as part of
ICASA's broader "Cost to Communicate" programme, which was intended to
§15
include various other initiatives.
119 Prior to 1 March 2013, while the Markets and Competition Division was in its
planning phase for the upcoming period, Cell C publicly called for the
suspension of the 2010 Regulations and, in particular, requested that the rates
envisaged for the period commencing on 1 March 2013 should not be
implemented. Cel! C complained that it was suffering prejudice as a result of
the !ow level of asymmetry provided for in the next phase of the "glide path".
120 ICASA's Markets and Competition Division considered these concerns but
concluded that it would be inappropriate for ICASA to accede to the request to
simply suspend the implementation of the 2010 Regulations with effect from 1
March 2013. It would, however, also be undesirable for ICASA to simply "do
nothing" in response to Cell C's request, especially since the Markets and
Competition Division was already !n the process of preparing its
recommendation to the !CASA Council regarding the proposed market review
and in the light of Cell C's threatened legal action.
121 The Markets and Competition Division therefore recommended to the ICASA
Council at its meeting of 25 March 2013 that the -appropriate regulatory
response to Cell G's request was the adoption of a "middle path" in terms of
which ICASA would release a media statement setti_ng out its intention to
conduct a market review with a vlew to the adoption of regulations to replace
the 2010 Regulations when they expired on 28 February 2014. The intention
was that this would provide regulatory certainty to the industry.
~16
122 On 27 February 2013, !CASA issued a media statement confirming that it would
not disrupt the glide path provided for in the 2010 Regulations but indicating its
intention to initiate a review of can termination rates (annexure "NB12"). ln this
document, !CASA noted that it was of the view that the barrier to effective
competition resulting in a reduction in call prices was- the high termination rate
and that it saw no reason, based on benchmarking, why mobile termination
rates should not be in the region of 15c- 25c.
The cost to communicate programme
123 On 31-May 2013, !CASA's Council approved a submission (annexed marked
"NB13") from the Markets and Competition Division dated 15 May 2013
recommending the gazetting of a notice of intention to implement the "cost to
communicate" programme in the Government Gazette, which would address
the following issues:
123.1 ICT indicators;
123.2 Cal! termination rates regulatory review;
123.3 Local loop unbundling regulations;
123.4 Broadcasting wholesale transmission servic~s; and
123.5 Broadband ECS/ECNS value chain analysis.
124 Approval was also granted for the release of a call termination review
questionnaire and it was noted (at paragraph 3.1 of the submission) that it was
~17
desirable to ensure "a higher degree of responsiveness to the Authority's
requests for infonnation under the various components of the Cost to
Communicate programme."
125 The notice regarding the implementation of the Cost to Communicate
programme was gazetted on 4 June 2013 and is attached to MTN's founding
papers marked ZB3. Paragraph 6 of this document indicated that the notice
was "a formal Notice of the review of the Calf Termination Regulations of
October 2010" and paragraph 6.1.2 indicated that "in carrying out the review,
the Authority will limit its scope to section 67(8) of the EGA" but that it would
"not consider revisions of either the market definitions or SMP determinations
as these will not have changed'. When read in conjunction with section 67(8) of
the EGA, it was quite apparent from these statements that
125.1 !CASA (in terms of section 67(8)(a)(i) of the EGA) took the view that
there was no reason to suppose that the market determinations made in
the 201 O Regulations had changed;
125.2 section 67(8)(b) of the EGA was not relevant because ICASA took the
view that there was no reason to suppose that the _SMP" determinations
made in the 2010 Regulations had changed; and
125.3 the review process would therefore be limited to 67(8)(a)(ii), read with
section 67{8){c) to the extent applicable.
126 Paragraph 9 of the announcement once again emphasised the importance of
licensees such as MTN and Vodacom providing !CASA with the relevant
~18
quantitative information that it required in order to set the new call tennination
rates:
"Licensees are to expect a significant number of requests for information from the Authority in the coming months. This is necessary to overcome the infonnation asymmetry that exists between the Authority and stakeholders. These information questions will consist of both quantitative ai-id qualitative questions".
The 2013 Call Termination Questionnaire
127 On 7 June 2013, ICASA held a meeting with stakeholders (including MTN and
Vodacom) and gave a presentation that introduced the cost to communicate
prog'ramme generally and the call termination questionnaire. The presentation,
which is annexed marked "NB14" included a slide (slide 11) in which !CASA
indicated its intention to "[e]stab/ish a cost base for call termination" and
introduce a "regulated glide~path towards the cost base". Slide 22 of this
presentation reminded licensees that they could expect a "significant number of
requests for informaUon" and an "increased [level of} one-on-one engagement
between the Authority and Industry". The penultimate slide (number 24)
contained this simple plea:
"This programme for all South Africans is dependent on the provision of infonnation from al/ licensees".
128 On 10 June 2013 !CASA sent all licensees a Jetter similar to that attached as
annexure V4 to Vodacom's affidavit. This letter clearly stated that ICASA
"through the quesUonnaire, seeks to .. co/feet ifJformation from licensees as to
the status of the market since the implementation of the glide path" and "assess
the necessity for any further regulation of wholesale voice ea// termination rates
in South Africa".
S19
129 This letter was sent together with a guideline (also included in annexure V4 to
Vodacom's founding affidavit) to assist licensees in its completion ("the 2013
guideline"). The 2013 guideline advised licensees, including MTN and
Vodacom inter alia that:
129.1 the objective of the questionnaire was to enable ICASA to conduct a
review of the existing 2010 Regulations (paragraph 1.3);
129.2 the information was required for !CASA to execute its functions in terms
of section 67 (paragraph 3. 1 );
129.3 the questionnaire was designed to "enable the Authority to gather and
update market information" to assist it in "(a) Assessing the level of
competitiveness in the relevant market; and (b} Determining the effect
of the Call Termination Regulations" (paragraph 1.3);
129.4 licensees were required provide audited financial statements (though
they could request to provide another type of financial statements if this
could be motivated) (paragraph 2.2.1);
129.5 licensees were "welcome to submit additional 'explanatory notes' with
the questionnaire to clarify any submissions, Or to provide detail on the
approach used in responding to a question" (paragraph 2.3);
129.6 the information was being requested in accordance with ICASA's
entitlement to do so under section 4(3)(g) of the ECA (paragraph 3.1)
and also in terms of the regulations entitled "Standard Terms and
Conditions for Individual/Class licences" (paragraph 3.2); and
520
129.7 the closing date for submission of responses to the questionnaire was
26 July 2013 (paragraph 4.6).
130 The 2013 calf termination questionnaire (attached to annexure 'V4" in
Vodacom's founding affidavit) was similar in many respects to the 2009
questionnaire. Licensees were required to provide their audited financial
statements for the years 2009 to 2012 (section B, question 6.2). These
documents were provided by both Vodacom and MTN.
131 On q July 2013, following the release of the questionnaire, MTN sent ICASA a
letter (annexed marked "NB15") in which it specifically recognised that the
questionnaire would (indeed could only) be used for the purpose of a review of
the pro-competitive measures imposed by the 2010 Regulations. Apart from
objecting to the provision of answers to various questions in the questionnaire
which it claimed were not relevant to a review of competition in the call
termination markets, MTN went on (in paragraph 15) to object to the provision
of infonnation regarding "the effect of the Call Termination Regulations".
132 It is furthermore noteworthy that while MTN referred to the proposed cost
accounting regulations which it suggested "should outline a costing
methodology that should be used for the calculation of voice termination rates",
it did not suggest that it would be willing to provide ICASA with the information
in the absence of such regulations.
133 On 17 July 2013, having considered MTN's objections, !CASA granted an
extension untll 2 August 2013 for the submission by licensees of their Q2
~
§21
responses to the call termination questionnaire and also advised them that
certain questions in the questionnaire need not be responded to. This was
communicated in the media release annexed hereto marked "NB16p.
MTN's responses to the 2013 questionnaire
134 MTN delivered its responses to the 2013 questionnaire on 2 August 2013.
MTN's response to section F (which is confidential) iS: annexed marked "NB17''.
135 In question 1c of section F of the 2013 questionnaire, licensees were asked
"wha't bas been the effect of the reduction in call termination rates (Glide Path)
on your business"? lt is noteworthy that MTN's response to this question -
136 Question 1 d of section F asked licensees "[i]f the Authority were to recommend
a new Glide Path, what would be your suggested rates?" MTN's response to
this question was •••••••••••••••••••••••
522
137 Question 1 e in section F asked the licensees to "provide reasons/evidence to
support your suggested rates?" MTN's response to this question bears
repeating in extenso;
138 In question 2f of section F of the -2013 questionnaire, licensees were asked "If
your company could unilaterafly raise termination charges by 10% from the
current level, what would the impact be on ... profitability?" Licensees were also
asked to explain their answers "using quantitative evidence, if available." Once
again, although the answer to this question would have assisted ICASA in
determining appropriate mobile call termination rates, •••••••••
• Vodacom's responses to the 2013 questionnaire.
139 Vodacom delivered its responses to the 2013 questionnaire on 2 August 2013.
A copy is annexed marked "NB18".
140 Vodacom did not provide any response at all to section F of the questionnaire.
S23
The 2013 Draft Call Termination Regulations
141 Following the receipt of the various responses to the 2013 questionnaire on 2
August 2013, JCASA's Markets and Competition Division analysed the
responses and worked on the draft regulations.
142 !n the absence of any direct cost data received from MTN and Vodacom, it was
not possible for !CASA to attempt to determine an appropriate termination rate
using actual costs. Instead, it had to utilise a similar method that it had followed
for the 2010 Regulations .••••••••••••••••••••
••••••••••••••••••••••. In seeking to set a
price based on 2013 costs using availabie financial results, ICASA thus
followed a financial modelling exercise using the cost structure for the provision
of call termination services extracted from the earlier COA/CAM filings and
forecast these expenses using information available from the operators' Annual
Financial Statements (AFS) and information provided in response to the 2013
questionnaire. Apart from the more recent AFS and the information supplied in
response to the 2013 questionnaire, the base source of information was thus
the same as had been used ln 2010. The 2013 draft regulations were published
by ICASA on 11October2013, and are annexed to M_T~'s founding- affidavit as
ZB4.
Basis of determination of termination rates in the draft regulations
143 In paragraph 5.2 of the explanatory note to the 2013 draft regulations, ICASA
indicated that it had determined the revised termination rates "on review of
~24
industry data".
144 lt is of critical importance to note that at the time of the publication of the 2013
draft regulations, both MTN and Vodacom were fully aware of the fact that they
had not provided ICASA with the detailed cost information that would be
required in order for a LRlC model to be employed in determining mobile
termination rates. It was therefore abundantly clear to them ·that the "industry
data" that !CASA was able to review was the same 2008 COA/CAM information
that !CASA had previously utilised, as updated by the audited financial
statements and other"information provided pursuant to the 2013 questionnaire.
They would also have been fully aware that !CASA would have had no
alternative but to utilise a similar methodology to that which had been employed
in setting the termination rates in 2010.
145 It is therefore entirely incorrect to suggest, as MTN and Vodacom do in their
founding affidavits, that they did not know what cost information was or would
be utilised by !CASA in reaching the conclusions that it did in the draft 2013
reg u!ations.
Basis of determination of asymmetry in the draft regulBtiOns
146 !t is incorrect to suggest that the basis for ICASA's decision on the asymmetric
rates in the draft 2013 regulations were the considerations referred to in
paragraph 2 of appendix A. The appendix simply repeated the contents of the
2010 Regulations. Paragraphs 5.9 and 5.10 of the explanatory memorandum
made clear, however, that !CASA was considering imposing different glide
§25
paths for large and small operators in recognition of the fact that not doing so
might have inequitable results for the smaller operators, taking into account a
number of factors, including "traffic imbalances reflecting economies of scale;
promotion of investment; encouraging competition and fostering SMMEs"
{paragraph 5.9). !CASA specifical!y recorded in paragraph 5.1 o that asymmetry
would allow smaller operators to invest in infrastructure and achieve sufficient
scale to address imbalances in traffic volumes.
The decision to hold oneRon~one meetings
147 !CASA has previously held public hearings when considering draft regulations.
The usual process at such hearings (and indeed, the process that was followed
in the public hearings held in respect of the 2010 Regulations) was for each of
the licensees to be given approximately one_hour to make a presentation after
which a few questions from the floor were alloWed, followed by questions from
the !CASA panel. ICASA has found that this process is not coriducive to a full
and frank exchange of views with licensees. This is particularly where, in
circumstances such as the present, what is in truth required is the provision of
detailed and potentially confidential Information.
148 Thus, although ICASA had originally conSidered holding public hearings
regarding the draft 2013 regulations, it was decided that it would be more
valuable to hold one-on-one meetings with the licensees. ln particular, it was
hoped that if this procedure was followed, licensees might be encouraged to
share quantitative infonnation regarding their costs of termination that they had
not provided in response to the questionnaire, and which had meant that
~~
~26
JCASA had not been able to develop and utilise a detailed cost-based model for
the accurate determination of mobile termination rates.
149 In the circumstances, on or about 8 October 2013 ICASA sent each licensee a
letter similar to that a1tached to MTN's founding affid".l-vit as annexure ZB5 and
to Vodacom's founding affidavit as annexure V6 (although I note that the
version of the letter attached to MTN's papers contains an incorrect annexure 1
thereto). These letters were issued immediately after the public release of the
draft 2013 regulations (which were formally gazetted on 11 October 2013). As
appe!ars from the document, licensees were invited not only to submit written
comments on the draft 2013 regulations but also to attend one-on-one
meetings with !CASA, the purpose of which was stated to include inter afia the
opportunity to make "fillle relevant representations they deem necessary"
[emphasis added].
150 importantly, licensees were furthermore asked to "prepare an outline of the
implications of the proposed termination regulations on your business" and to
"be prepared to provide supporting evidence to your presentation". The reason
for this request was that ICASA (and, indeed, the licensees thems_elves) were
aware that the information that had been used in order to determine the
proposed termination call rates was not comprehensive and that ICASA wanted
to give the licensees a full opportunity, if necessary, to demonstrate with
reference to actual data that the termination rates that had been determined
were below the licensees' actual termination costs, which was not ICASA's
intention.
~27
The MTN one-on-one meeting
151 MTN's response to the proposed one-on-one meeting was its letter of 25
October 2013, annexed to MTN's founding affidavit as Z86. The request in this
letter to "inspect and analyse the costing study undertaken by the authority .
in order [to] interrogate the data and raise any concerns with /CASA" is
surprising in the light of:
151.1 MTN's knowledge regarding the information that ICASA had in its
possession that could be used in determining the termination rates; and
151.2 'the fact that MTN had itself proposed that ICASA follow "the
methodology used to set rates during the last glide-path" while new
models were being developed.
152 In other words MTN could have been under no misapprehension regarding the
methodology that !CASA had sought to follow and the infoITTlation that it would
have been available to be used in this exercise.
153 ln addition, MTN's contention that the draft 2013 regulations do not explain the
basis of !CASA's decision in relation to asymmetry is belied by_ the fact that
paragraph 5.9 and 5.10 of the explanatory men:iorandum do precisely that.
154 The further enquiry by MTN as to whether ICASA had _undertaken an analysis
of the financial impact on MTN and the other licensees was also surprising in
the light of the fact that ICASA had specifically requested the licensees to
provide !CASA with relevant information in this regard and given them an
opportunity to present it at the one-on-one meetings.
155 In the circumstances, there was no need for ICASA to further clarify any aspect
of its decision. lCASA's letter (annexure ZB7) of 4 November 2013 (re-iterating
that MTN would be given an opportunity to share its views on the implications
of the proposed termination rates in its business) was a perfectly appropriate
response to MTN's letter.
156 It was in this context that lCASA expected MTN to attend the one-on-one
meeting prepared to engage in a detailed discussion with ICASA regarding the
specific details of th3 proposed termination rates and their relationship to
MTN's actual termination costs.
157 Stripped of its emotive content, the account given of the meeting in paragraph
59 of MTN's founding affidavit is broadly accurate. MTN was given a full
opportunity by ICASA to make any and a\I submissions that it wished to make
and was not interrupted by the ICASA councillors in doing so. As stated in the
affidavit, it was only ''at the end of the MTN presentat;on~ that it was suggested
by Councillor Stucke that MTN had not engaged meaningfully. Although not
strictly relevant for the determination of this application·, I do however dispute
that Councillor Stucke expressed himself in . "inexplicably intemperate
language".
158 The frustration of the ICASA panel was perfectly understandable given that
MTN contented itself in addressing the impact of a decrease in its profitability
(as is apparent from ZB8 and ZB9) and making vague threats of litigation while \£)
~
q29
declining to share any information with ICASA demonstrating that the proposed
call termination rates were below actual termination costs. This was despite the
fact that MTN had been specifically requested by !CASA to do so, and despite
the fact that MTN was fully aware that !CASA was not in possession of specific
cost data other than that which had been made available by the licensees
themselves.
159 I should also note that I did not mean to suggest that ICASA itself had "misted'
MTN but rather that MTN had not understood what !CASA wanted to get out of
the ineeting (i.e. detailed information relating to MTN's actual termination
costs). My suggestion of a further meeting was only made on the basis that
MTN would be prepared to engage with ICASA in relation to the information
sought.
160 tn order to determine whether this would be the case, however, it would be
necessary to consider the detailed written submissions that MTN was due to
submit to ICASA.
The Vodacom one-on-one meeting
161 Although the Vodacom one-on-one meeting {":'llso held on 7 November 2013)
was not as antagonistic as the MTN meeting; the interaction was similarly
disappointing from ICASA's perspective in that Vodacom did not seek to
engage with the lCASA in relation to its actual call termination costs, save to
say that Vodacom's own high-level cost estimates indicated that the target rate
of R0.10 was too low.
~30
162 Importantly, however Vodacom was nevertheless prepared to accept that
!CASA should adopt an interim mobile termination rate pending the
development of a bottom~up long run incremental cost (BULRJC) model.
163 Vodacom raised no concerns about the duration of this meeting or the topics
that were discussed. To the contrary, in the covering letter of its written
submissions (annexed marked "NB19") Vodacom specifically expressed "its
gratitude to the Authority for the meeting ... where the key areas of impact and
concern with regard to the proposed Call Tennination Regulations were
discUssed extensively''.
The Cell Cone-on-one meeting
164 The one-on-one meeting with Cell C was held on 6 November 2013. At this
meeting, Cell C made a presentation which is confidential (attached marked "NB20")···············-
MTN1s written submissions
165 MTN delivered its detailed written submissions in relation to the draft 2103
regulations on 22 November 2013 (the non-confidential version is annexure
ZB11 to MTN's founding papers),
~31
166 To JCASA's disappointment MTN took the same approach in its written
submissions that it had in the one-on-presentation and made no attempt to
demonstrate what its actual call termination costs were or that the proposed call
termination rates were below those costs.
167 On 28 November 2013, ICASA advised MTN ln a letter (ZB12 to MTN's
founding affidavit) that it would decide whether the mooted further meeting
would be necessary after considering MTN's submissions.
168 On ~eviewing MTN's written submissions, it became apparent that MTN had
rejected the proposed regulations ho/us bolus. This gave the impression that it
had no real intention of engaging constructively with ICASA. For example, MTN
described particular provisions as "irrational and unreasonable" (paragraph
2.3), alleged that ICASA "has not properly applied its mind' (paragraph 2.14),
and concluded that some of ICASA's conclusions were "bizarre" (a word used
at least four times - for example in paragraphs 3.1; 3.4.7; 3.4.8.1; 3.4.8.3 and
5.4) and "logically wanting" (paragraph 3.4).
169 In the light of MTN's clear unwillingness to engage with ICASA in relation to its
actual termination costs and the extent to which the· proposed rates were
unaffordable, ICASA therefore took the view ttiat no useful purpose would be
served in holding the mooted further meeting. This was conveyed on 28
January 2014 (annexure ZB12(a) to the MTN founding affidavit).
~32
Vodacom's written submissions
170 As with MTN, Vodacom's written submissions on the draft 2013 regulations
(annexure V7 to Vodacom's founding affidavit) contained no specific
information in relation to Vodacom's mobile termination costs.
171 The important aspects of these submissions from a procedural fairness
perspective were those summarised in the detailed response to the "target
MTR" proposed in draft regulation 7(5)(a), which are to be found on page 34 of
the submissions and were as follows:
171.1 ln the first place, it is apparent that Vodacom was under no
misapprehension (as MTN claimed to be) that !CASA may have
conducted a detailed study of mobile termination costs. To the contrary,
Vodacom recognised that the proposed rates were based on the
information provideC:· by the licensees pursuant to the 2013
questionnaire and submitted that "the information requested by the
Authority to date is insufficient to inform cost~orientated rates based on
detailed economic analysis and the development of a cost model' and
that "in aniving at the target rate, the Authority dfd not make use of such
amodef';
171.2 Secondly, Vodacom noted that it had "conducted a high level cost
estimate which indicates that the target MTR of R0.10c is too low for
South Africa"; and
171.3 Thirdly, while Vodacom was anxious that lCASA should proceed with
~33
consultation on a BULRJC cost mode!, it also accepted that ICASA
should ".. impose reasonable interim rates while [it] proceeds with
thorough consultation on a BULRIC model,"
Cell C's written submissions
172 Cell C's written submissions (annexed hereto marked "NB21 ") were
substantially similar to the submissions made in its one-on-one meeting. They
contain nothing of relevance to the procedural fairness challenges raised by
MTN and Vodacom.
The 2014 Regulations
173 Following the conduct of the one-on-one meetings and the receipt of all of the
written submissions on the draft 2013 regulations and after the Markets and
Competition Division carefully considered all of the submissions that had been
made, !CASA's Council approved the 2014 Regulations at a meeting on 28
January 2014.
174 As appears from a comparison between the draft 2013 regulations and the final
version, !CASA made a number of changes on the- .ba_sis of the consultation
process and the input of the various stakeholders, for example:
174.1 The reduction of the period during which asymmetry would apply {this
was in response to a specific concern of MTN and Vodacom);
174.2 The removal of the distinction between tennination to a fixed location
Within and Between a ON area code in Market 2; and
q34
174.3 The removal of spectrum allocation as a qualification criterion for
asymmetry.
175 The reasons for other changes, such as the adoption of share of retail revenue
as the measure for determining asymmetry qua!ific~tion, the incluslon of the
determination of who qualified for asymmetry and the new asymmetric rate and
period for mobile operators are set out elsewhere in this affidavit.
176 The 2014 Regulations and explanatory memorandum were gazetted on 4
Feb~u~,IY 2014 and are annexure ZB2 to MTN's founding papers.
THE SUBSTANTIVE ATTACKS ON THE NEW REGULATIONS
The principles behind reducing termination rates through regulation and the detennination of the final base price
177 It is a generally accepted principle of economics that in competitive markets,
prices of goods or services are driven down towards their costs of production
(including, of course, a normal return).
178 It is also generally accepted in relation to th~· prices of voice telephony that
termination rates set a floor for retail prices, because they are a cost that
cannot be eliminated by the operator that incurs them (because they are
charged by another operator) and therefore retail prices must include them.
Termination rates that are set above the actual cost to terminate a call therefore
inhibit the ability of operators in the retail market to lower retail prices to the
\{;!
~P
~35
level that competition might otherwise drive them. This is obviously to the
detriment of consumers.
179 It is also generally accepted by regulators internationally that any operator
exerts market power over the setting of its own termin~tion rate and therefore in
the absence of regulation will set these above cost. Where a termination rate,
therefore, is set under regulation, it should generally be set as close to cost as
possible. As long as the retail market is competitive then this will ultimately
result in lower retail prices.
180 !CASA set out this reasoning in the explanatory memorandum to the 2010
regulations, inter alia in section 3.2. which records that:
"2. A reduction in tennination rates does not necessarily feed through directly to a reduction _in retail rates.
3. The object of reducing wholesale voice call termination rates is to reduce the barrier to entry in the provision of off-net calls thereby fostering competition and a dynamic reduction in retail prices over time.
5. [!CASA] expects the impact of [the regulations} to be ... (c) a reducUon in the price of a call from a mobile location to both mobile and fixed locations over time as licensees adjust to greater competitive pressures''
and in the conclusion in section 4, which records that
"1. As stated by stakeholders, the regulation of tennination rates in South Africa has been benign. This benign environment allowed for both the diffusion and geographic availability of a multitude of seNices, notably mobile telephony seNices.
2. However, it Is now time for all South Africans to benefit from the existence of the past benign environment. [!CASA] now believes it necessary for termination rates to be lowered to foster
~36
competition and allow the benefits of the past regime to flow through to end~users, ultimately in lower retail prices" (footnote omitted)
181 JCASA's ultimate goal in setting termination rates therefore is to ensure, as best
as it is able to ascertain, that those rates reflect the actual cost of termination
182 The most accurate method for doing so would, of course, be to rely on actual
cost information from the mobile operators. Regrettably, however, since 2008
both Vodacom and MTN have declined to continue providing cost information to
!CASA, as MTN acknowledges in paragraph 97 of its founding affidavit and as
is set out in greater detail above.
183 In determining the termination rates to be applied under the 2014 Regulations,
!CASA therefore adopted a number of different methodologies. These are
referred to in paragraph 5.3 of the explanatory memorandum.
184 The main methodology employed by !CASA was the application of a LRIC-
based financial modet, which made use of information provided by the main
operators as part of the filing of their COA/CAM accounts before 2008 to
determine ratios of call termination CAPEX and OPEX to total CAPEX and
OPEX and then made projections as to these terminatio"n costs ln the years up
to 2013 using two different methodologies:
184.1 Firstly, applying an annualised growth figure for the cost of call
termination (determined from the COA/CAM filings in ICASA's
possession) to the call termination CAPEX and OPEX set out in the
2008 reports.
§37
184.2 Second, applying the CAPEX and OPEX ratios to the total CAPEX and
OPEX figures contained in the annual financial statements of the two
large operators.
184.3 Finally, using information provided by the mobile operators in response
to questions in the 2013 questionnaire.
185 ICASA cross-checked the results it obtained from this exercise by
benchmarking against termination rates in other jurisdictions and considering
the ~xtent to which MTN and Vodacom were able to engage in differential
pricing for on-net/off-net calls. In brief explanation of the use of the latter, I point
out that the only cost that is not common between an on-net and an off-net call
is the termination charge that must be paid for an off-net call. An on-net call
attracts only the actual cost of termination. When, therefore, an operator
charges more for an off-net call than an on-net call, this is an indication that the
termination rate may be higher than the actual cost to terminate.
186 The application of these different methodologies indicated that the termination
rate of 1 Oc would be above the actual cost of termination for efficient operators.
This meant that the termination rate of 40c provided for. (in the year ending 28
February 2014) under the 2010 Regulations was, contrary to what ICASA had
determined in the process of setting the rates to apply under the 2010
Regulations, still significantly above cost.
187 The reason for this significantly different result was that for the purposes of
determining rates under the 2010 Regulations, ICASA calculated the costs of
~38
termination on a fully allocated, or FAC basis, while for the 2014 Regulations it
did so on a long run incremental, or LRIC, basis. This is explained in paragraph
5 of the explanatory memorandum to the 2014 Regulations. It is generally
accepted by regulators internationally that it is appropriate to determine the
costs of termination on the basis of long run incremental costs. The difference
between the two ls that a FAC approach includes in the costs of termination a
proportional allocation of all relevant operator costs whilst under LR!C only the
incremental costs of providing the termination service are included. As outlined
in the COA/CAM Regulations, LR!C would therefore exclude any allocation of
joint, c'Ommon and fixed costs (such as business support activities), but also
any network costs would be allocated on the basis of the incremental network
costs required to provide termination over and above other network services.
188 Since mobile operators were setting termination rates at the levels permitted by
the 201 O Regulations rather than by reference to their actual cost (the regulated
tariffs being no more than a permissible maximum), !CASA concluded that
clearly there was no effective competition between mobile operators in regard
to these rates since, as I have explained above, if there were competition, this
would have resulted in these prices being driven down towards Co"St. JCASA's
conclusion is reflected in regulation 7 Of the· 2014 Regulations. Although I
accept that the wording of the regulation is inele9ant, l point out that it is exactly
the same finding as ICASA made in 2010, which finding is recorded in the 2010
Regulations in almost identical language. Neither MTN nor Vodacom ever
complained that it did not understand what was set out in those regulations.
g39
189 The obvious remedy for this failure of competition is to impose a new rate that
more accurately reflects the actual costs of termination, and this is what ICASA
attempted to do in the 2014 Regulations. As ! have indicated, ICASA
detennined that the appropriate ultimate rate for termination, which 1 shall refer
to as the base rate, should be 1 Oc.
190 Both MTN and Vodacom dispute in their applications that the base rate of 10c
is above its costs (or, more correctly, will be above costs in 2016 when it is
implemented). l point out that neither MTN nor Vodacom has, on this important
issue, indicated what its actual costs are, and the case each makes is no more
than an attack on the reliability of the conclusion reached by ICASA. To meet
this attack, in preparation for this application, ICASA consulted with its legal
advisers and independent economic experts. As a result of those consultations
!CASA is no longer satisfied that the application of LRIC relied upon by ICASA
yields robust conclusions in respect of appropriateness of the rates of 15c and
1 De set to be imposed under the regulations.
191 These concerns have led !CASA to decide that it will undertake a process
(within a 6 month period) to reconsider the correctness of the 1_5c and 1 Oc
rates. However, !CASA remains entirely satisfied that the rate of 20c to be
imposed on large operators on 1 April 2014 is robust and correct and yields a
result that is above cost I point out that neither MTN nor Vodacom dispute in
their founding papers that 20c is more than their current actual cost of
termination. A review undertaken by G:enesis Analytics, the independent
economic experts engaged by ICASA, confirms this. In this regard 1 attach a
§40
report by Mr James Hodge of G:enesis Analytics to this affidavit marked
"NB22". Due to the fact that the report extensively sets out confidential
information of the mobile operators, the document cannot be generally
disclosed and must be treated as confidential. In the cirt;umstances, and
because of the importance of the implementation of ·the regulations (a point I
also address elsewhere in this affidavit), !CASA thus opposes the application
for interim relief since there is no basis to prevent the rate of 20c (or the degree
of asymmetry afforded small operators at the start of the glide path, a point 1
deal with elsewhere in this affidavit) coming into force on 1 April 2014. That is
the onlY rate of relevance in the interim pending the outcome of the process of
reconsideration.
The adoption of different glide paths for small and large operators resulting in asymmetrir: termination rates
192 The large operators, MTN and Vodacom, submitted during the consultations
that preceded both the 2010 and 2014 Regulations that the "shock'' effect of a
reduction in termination rates should be mitigated by phasing in the ultimate
reduction over a number of years rather than immediately. This phasing in
period is generally referred to as "the glide path".
193 JCASA was mindful of these representations but.also determined to ensure that
the imposition of a glide path took into account the interests of consumers and
also the individual positions of the different mobile operators.
194 1 discuss the former in more detail below. In relation to the latter, ! point out that
~41
historically, Vodacom and MTN, have charged termination rates that were
significantly above their costs, and were able to use the profits they generated
to strengthen their businesses, in particular funding infrastructure development.
195 They a!so benefitted from an asymmetric termination rate as against Telkom,
which was not only the only other firm offering telecommunication services
when they commenced business, but also initially had a much larger customer
base. This meant that they generated significantly more profits from termination
than Telkom, and therefore had significantly more money than Telkom to spend
on 'developing their competitive offering, in particular their network
infrastructure.
196 Cell C did not benefit similarly when it commenced business. It was not able to
negotiate asymmetric rates as against the tw"o incumbent mobile operators (and
no such rates were imposed by regulation) and therefore did not enjoy the
competitive advantage they had enjoyed as against Telkom. Furthermore, while
Cell C received the same termination rate as MTN and Vodacom (and therefore
generated profits from termination), because MTN and Vodacom naturally had
many more subscribers than Cell C, many more calls were termln_ated on the
networks of MTN and Vodacom than on Cell C's. The result was that MTN and
Vodacom made substantially more profit from the high termination rates than
Cell C did and they were therefore able to spend more on improving their
competitive position than Cell C was. The disadvantage suffered by Cell C as a
new entrant therefore grew worse over time, not better.
~42
197 Telkom Mobile, of course, as the most recent entrant has not had anywhere
near as long as MTN and Vodacom to earn profits from termination charges.
198 While !CASA has therefore accepted the principle that ultimately all mobile
operators should be obliged under the regulations to charge termination rates
that are cost-oriented, it has taken this history into account in determining that
smaller operators should have a different glide path to that rate than large
operators.
199 In t~e 2010 Regulations, 1CASA gave a degree of asymmetry to Cell C and
Telkom Mobile that was intended only to reflect the higher actual costs they
incurred in terminating calls as compared to MTN and Vodacom, because of
the more expensive spectrum they operated on and the higher costs they
incurred because of their lack of scale. This asymmetry operated not just during
the period of the glide path, but also at its conclusion.
200 Jn contrast, the levels of asymmetry in the 2014 Regulations are not intended
simply to reflect higher actual costs, but rather to ensure an appropriate glide
path for smaller operators that permits them to continue to profit from
termination charges during the period of adjustment. to Cost-based rates to a
much greater extent than the larger operators, but in the same manner the
!arge operators did historically. In ICASA's view, to require the smaller
operators to give up profits from termination as quickly as the large operators
would be inappropriate and might well disadvantage them unfairly. !CASA
anticipates that the small operators will use that profit as MTN and Vodacom
g43
did, for capita! expenditure generally and in particular to fund the development
of network infrastructure. This is referred to in paragraph 5.8 of the explanatory
note that accompanies the 2014 Regulations. It was also referred to in
paragraphs 5.9 and 5.10 of the explanatory note accompanying the draft 2013
regulations published on 11 October 2013.
201 The use of different glide paths resulting in asymmetric rates for purposes other
than to reflect actual differences in cost is recognised in a number of
jurisdictions, including the European Union (although asymmetry has not been
applied for that purpose in that jurisdiction as far as I am aware). I refer in this
regard to paragraph 4.2 of the explanatory note that· accompanied the
European Commission's Recommendation on the Regulatory Treatment of
Fixed and Mobile Termination Rates in 2009. In that paragraph the Commission
explained that "A key argument frequently used in support of the authorisation
of temporary asymmetric rates in favour of later entrants, and in the absence of
any verifiable objective cost differences, is that it forms part of an overafl entry
assistance policy which is aimed at promoting new entry and longer-term
competition in fixed and mobile markets. The rationale is that allowing higher
post-entry profits will encourage entry and investment. a~d-lead to- riiore intense
competition in the long run." I attach a copy of that paragraph to this affidavit
marked "NB23".
The determination of the periods of the glide paths and the rates to be charged by small and large operators during those periods
202 As I have indicated above, in determining the periods of the glide paths, !CASA
~44
took into account the submissions of MTN and Vodacom that any reduction in
rates should be phased in over a number of years rather than immedlate!y, the
different positions and histories of the small and large operators and the
interests of consumers.
203 !n relation to this last point, it must be borne in mind that once !CASA had
determined that termination rates were well above cost, allowing operators to
charge one another those rates was ultimately to the detriment of consumers,
since those charges are passed on to consumers as part of the price of voice
calls'. F?ermitting mobile operators to charge termination rates above cost
results in operators making profits at the expense of consumers.
204 ln relation to large operators, !CASA has therefore determined that the
reduction to cost should be phased in by 1 April 2016, with a significant
immediate reduction in termination rates. This will enable the smaller mobile
operators wishing to compete on price the opportunity to lower retail prices
immediately by a significant amount, which will provide significant consumer
benefits as the majority of calls terminate on the networks of the large
operators.
205 For small operators, ICASA has determined that the reduction should be
phased in by 1 April 2017, with provision for them to continue making profits
from termination for most of the period.
206 ICASA performed a general cross-check to confirm that the imposition of the
glide path for smaller operators would not lead to a small operator such as Cell ~
~'~
§45
C making unreasonable profits from termination charges over the period of the
regulations - although I point out immediately that Cell C would never make as
much as MTN or Vodacom did from termination because the number of calls
terminated on its network is much smaller than theirs and because the rates
Cell C will be ab!e to charge from 1 April 2014 are no higher than MTN and
Vodacom applied at the end of the glide path under the 2010 Regulations. In
any event, the cross check revealed that the ••••••••••••
207 Regulation 8 of the 2014 Regulations provides for the review for the rates that
apply at the end of the glides paths.
The detennination of who benefits from the more gradual glide path
208 Finally, lCASA has determined in the 2014 Regulations.who will-be entitled to
benefit from the asymmetric pricing scheme that will remain in force during the
period of the glide path. Although the rates will be charged in the wholesale
market for the provision of call termination servi'ces (described in the
regulations as "Market 1"), ICASA has made its determination with reference to
the market shares of the various mobile operators at the retail level for the
provision of voice telephony services (which l refer to as ''the retail market").
§46
209 It has done this because in the determination of the appropriateness of the
longer glide path it was obliged to consider the effect of that glide path on
consumers and on the operators and because the retail market is the market in
which the size of the operators can be assessed.
210 As far as the operators are concerned, lt is not in dispute that the market for call
termination is a derived market - calls are only terminated because they are
originated; and they are only originated because subscribers are using the
services of mobile operators with whom they have contracted. The competition
betw'een mobile operators occurs at this level, in the form of competition
between them to secure subscribers in the retail market. As pointed out in both
the 2010 and 2014 Regulations, and seemingly accepted by both MTN and
Vodacom, there is no competition between mobile operators for termination of
calls on their own networks. They each have sole control over their respective
networks and therefore SMP in the market.
211 The natural place to look in order to determine whether conferring on certain
operators the benefit of additional profits will operate unfairly between them is
therefore the retail market and ICASA took the decision that size .in this market
would therefore be a fair basis on which to determine which operators would
benefit from the longer and more gradual glide path.
212 In the 2010 Regulations !CASA used "share of total minutes terminated" as the
basis on which to determine market share. lt became clearer to !CASA during
the review process, however, that the large operators could influence traffic
~47
flows by discouraging their subscribers from making calls to other networks (by
raising the price) or incentivising them to make calls on their own network (by,
for example, offering free airtime for such calls}. The process by which large
operators can distort traffic in this way is well-recognised in the economic
literature. lt is referred to as "the club effecf'. Such actions would reduce the
number of calls terminated by the large operators on other networks and
therefore reduce their market share if calculated on that basis. For this reason
too ICASA determined to use market share in the retai! market as the basis on
which to determine which operators would benefit from the longer and more
gradual glide path rather than share of minutes terminated.
213 Using this measure also gave an indication to ICASA as to whether consumers
would be unfairly harmed by having to pay high termination rates for a long
period. Since on the approach employed by !CASA, by definition the majority of
calls made will not be subject to the higher termination rates, this measure of
market share was appropriate.
214 !CASA therefore determined market share with reference to local voice
telephony revenue, since call termination is ultimately a voice telephony
service.
215 Using this criterion, ICASA has determined that MTN and Vodacom will be
obliged to charge the rates set out in the regulation itself, while all other
licensees will be able to charge the higher rate set out in appendix A of the
2014 Regulations. ICASA made this determination using the data provided by
§48
the mobile operators in response to the questionnaire it issued in July 2013.
That data was for a long period but ended in December 2012. The regulations
expressly refer to this date.
216 I note that both MTN and Vodacom complain in t~eir applications that the
meaning of the term "retail revenuen is not readily ascertainable, I find this
contention scarcely credible. In the first place, as I have said, it is obvious.
217 Moreover, and in any event, the 2013 questionnaire contained a set of
queS:tions relating to "retaH revenuen, which equally made it clear that this
related to voice telephony. As I have indicated above, I have attached an
extract from this questionnaire to this affidavit marked "NB24". And lam aware
that MTN has historically reported this revenue as a separate line item in its
financial statements.
218 I note also that despite their professed uncertainty, neither MTN nor Vodacom
has challenged ICASA's findings on share of retail revenue set out in the 2014
Regulations, namely that Cell C and Telkom Mobile have less than 20°/o, while
MTN and Vodacom have more. That they have not done so is, I submit, the
clearest indication of ~".OW artificial their complaint is.
219 I accept that paragraph 5.10 of the explanatory memorandum is factually
incorrect when it records that ICASA employed this methodology in the 2010
Regulations. This error does not, however, I submit have any material impact
on the substance of the regulations.
§49
220 !CASA's intention in the 2014 Regulations is that any operator that qualifies for
asymmetry at the commencement of the regulations should be entft!ed to the
full benefit of asymmetry for the duration of the regulations, regardless of
whether it increases its market share to over 20o/o before 1 April 2017 or not.
This ensures both that smaller operators obtain the full benefit of asymmetry,
and, equally importantly, ensures certainty for the small operators in drawing up
business plans for the next five years.
221 For this reason, there is no provision in the 2014 Regulations for the review of
market· shares during the period. Of course this does not prevent MTN or
Vodacom from requesting !CASA to undertake such review should the
implementation of the regulations cause either of them unfair hardship. Cell C
requested precisely such a review from !CASA at the end of 2012.
The provision for indefinite asymmetry after April 2017
222 !CASA has recognised in the 2014 Regulations, as it did in the 2010
Regulations, that very small operators will always in fact have higher costs to
terminate calls on their networks than large OP$Tators because of economies of
scale. The regulations therefore make provision for continuing asymmetry for
very small operators (those with less than 10% market Share) after April 2017,
to reflect what will undoubtedly be their actual higher costs of terminating calls
on their networks. The reasons for this asymmetry must be distinguished from
those that inform the asymmetry that persists during the period of the glide ~
~
§50
path.
The determination of rates and a glide path for termination on a fixed line network
223 I am advised that the determination of the termination rates to a fixed network is
not relevant to the assessment of the rationality or reasonableness of the
determination of those rates to a mobile network. For completeness, however,
and ,insofar as this honourable Court may consider it relevant, the rates for
termination to a fixed network under the 2014 Regulations were determined as
follows.
224 The base rate was chosen because ICASA considered that it is oriented
towards the costs of terminating a call on a fixed network. !CASA reached this
conclusion on the basis of submissions made to it during the 2013 process that
there is no significant difference in cost beTuveen terminating a call on a moblle
network and on a fixed network, as referred to in paragraph 5.4 of the
explanatory memorandum. I point out that neither Telkom nor Neotel dispute
ICASA's determination.
225 As for mobile operators, ICASA put in place twO different glide paths, one for
the large operator and one for the small operator, applying the same principles r
have outlined above in relation to mobile operators to the period of the glide
paths.
§51
226 As for the steepness of the paths, the choices available to ICASA were
obviously limited by the fact that the current termination rates for calls to a fixed
network are 12c and 19c for Telkom (with Neotel and others permitted to
charge 10%> more) while the final base rate will be 1 Oc. !n these circumstances,
and having regard to the generous profits mobile operators have been making
from termination charges under the 2010 Regulations compared to fixed
network operators, !CASA decided to permit the fixed line operators to continue
charging the same termination rates as currently until the last year of their
respective glide paths. I submit that this decision does not operate unfairly '
against any of the mobile operators, which will continue to make greater profit
than the fixed-line operators for each ea!! terminated for the whole of the glide
paths.
227 The distinction between within ON network and between ON network termination
is removed at the end of the glide path, a change agreed to by Telkom.
228 Finally, as with mobile operators, provision has been made for ongoing
asymmetry after April 2017 for very small operators to reflect their higher costs
of termination
THE IMPACT OF THE RELIEF SOUGHT ON THE SEPARATION OF POWERS
229 There can be no question that the decision of lCASA. to promulgate the 2014
Regulations is a highly policy-laden and polycentric one. This emerges from:
229.1 The provisions of the EGA and !CASA Act ta which I have made
§52
reference above, which demonstrate that Parliament considered that
ICASA has specific expertise in relation to the telecommunications
industry in general and this issue in particular;
229.2 The international trade considerations to which l have made reference
above;
229.3 The highly complex and technical nature of the decision at issue, which
required ICASA to consider a range of competing interests and
considerations, including particularly the effect on members of the
··public of the decision concerned; and
229.4 The fact that the decision was to be effected by means of delegated
legislation.
230 This has significant consequences for the order sought by MTN and Vodacom
in Part A of this application. That order seeks to prevent the material aspects of
the 2014 Regulations from coming into force at all, for a period of many months
or years. In and of itself, that raises very serious separation of powers
concerns.
231 Moreover, the separation of powers concern's are especia!!y acute in the
present context given that granting the interdict sought by MTN and Vodacom
will result in a lacuna being created in respect of the regulation of mobile call
termination rates.
231.1 This is because the 2010 Regulations only regulate mobile call
§53
termination rates for the period 1March2011to1April2014.
231.2 From that point on, if the substantive provisions of the 2014 Regulations
are prevented from coming into force by the order of this Court, this will
mean that mobile call termination rates are effectively unregulated for
the period of many months or years that the interim interdict endures.
231.3 This is despite the fact that MTN and Vodacom (and other players in the
industry} do not dispute that ICASA is entitled to regulate mobile call
termination rates, that it is important that it does so and, as I
'demonstrate below, that the rates set by the 2010 Regulations are no
longer appropriate and need to be reduced.
232 Granting the order sought therefore would involve very serious separation of
powers concerns by virtue of the Court's incursion into terrain properly reserved
for ICASA, which is an expert and independent regulator established under the
Constitution.
233 On this basis alone, before even dealing with questions of irreparable harm and
the balance of convenience, this Court should refuse the relief SOl!Qbt.
THE QUESTION OF IRREPARABLE HARM TO MTN AND VODACOM
234 MTN and Vodacom's contentions in respect of irreparable harm are essentially
l:vilo-fold.
§54
234.1 First, they contend they will experience significant reductions in
termination revenues due to them having to charge termination rates to
other operators of 20c rather than the current rate of 40c (which is the
only change effected on 1 April 2014). They contend also that they will
pay more in termination fees to other operators than they receive, thus
causing losses in relation to termination rates.
234.2 Second, they contend that the effect of the asymmetrical rates
contained in the 2014 Regulations will be that they are forced to
,subsidise their competitors - Cell C and Telkom Mobile. They argue
that this means that Cell C and Telkom Mobile will be able to implement
measures to grow their business and their market share, at the expense
of MTN and Vodacom.
235 ICASA takes issue with a number of these propositions, but in any event denies
that they establish irreparable harm sufficient to justify the far-reaching order
sought by MTN and Vodacom in Part A.
236 ln dealing with these points, I emphasise what is stated above - name!y that
236.1 !CASA has decided to engage in a reconsid8r8.tion of the termination
rates applicable for the years beginning 1. Ap"ril 2015 and 1 April 2016:
236.2 \CASA has taken a decision to repeal the 2014 Regulations insofar as
they purport to regulate call termination rates beyond 31 March 2015;
and
§55
236.3 ICASA's process of reconsideration will likely take six months to
complete and wil! certainly take no longer than a year to complete.
237 Given this and given moreover that these are urgent proceedings for an interim
interdict, the only al!eged irreparable harm conceivably relevant to the present
application is the harm said to arise from the first year of the operation of the
2014 Regulations.
238 Much of the alleged irreparable harm relied on by MTN and Vodacom does not
relate to this twelve month period. Instead it relates to the 2014 Regulations
governing the periods commencing on 1 April 2014 and 1 _April 2015. This is
not relevant to Part A of this application.
MTN and Vodacom will continue to make profits on call termination
239 Even if the 2014 Regulations remain in force for a full year from 1 April 2014,
MTN and Vodacom wil! continue to make profits on call termination. As ! have
demonstrated above, this is so in respect of both calls terminating on their own
networks and calls from them terminating on other networks.
240 In respect of calls terminating on their own netWorks, MTN and Vodacom will
continue to make profit because the 20c ffgure set by· fhe 2014 Regulations is
above their costs.
241 In respect of calls terminating on the networks of Cell C and Telkom Mobile,
,41
MTN and Vodacom will still make profit.
241.1 Where an operator such as MTN pays a call termination fee to another
operator, MTN recovers this cost from the consumer who makes the
call. This is done via the total call price billed to the consumer.
241.2 So, whatever termination rate is set by the 2014 Regulations for Cell C
and Telkom Mobile to charge to MTN, MTN will recover this from the
consumer concerned. Moreover, because MTN sets the call price to be
paid by its consumers, MTN can then not only recover the cost of the
termination rate, but also make margin on the overall call cost.
242 This has two important implications for present purposes,
242.1 First it is incorrect to examine the so-called net termination position
(payments less receipts) as reflecting 'profrts' or 'losses' as MTN and
Vodacom do in their founding papers in dealing with irreparable harm.
242.1.1 These are two separate and different transactions {incoming
and outgoing) and MTN and Vodacom make a margin on both
(margin on the outgoing call and margin on the. termination
service of an incoming call).
242.1 ,2 As such, both activities are profitable for MTN and Vodacom
and this will remain so when the 2014 Regulations come into
force. The net termination position created by the 2014
Regulations bears no relationship to the profitability of MTN or
Vodacom.
242.1.3 Indeed, reduced termination fees will have little effect on the
businesses of MTN and Vodacom, because they contribute
relatively little to their overall profitabilfty or their ability to raise
capital, invest, and grow.
242.1.4 For example, between 2010 and 2013, MTN's net termination
position declined by almost R1bn. However, during this same
period MTN's overall subscriber numbers, revenue and profits
grew. The position in respect of Vodacom was similar.
242.1.5 There is no reason to expect different results for the first year of
operation of the 2014 Regulations.
242.2 Second, the net termination position is affected by the volume of
incoming and outgoing calls. This is in turn dependent on a range of
factors including the call prices charged by both operators to their
subscribers for off-net calls and the number of subscribers on each
network. 1111111111111111111111111111111111111111111111
- At the same time MTN engaged in promotions increasing on
network traffic which reduced its flow of out-going minutes and assisted
in decreasing its operational costs. This is made clear by MTN's Review
of Results for 2012, a copy of the relevant pages of which is attached
[JH,;P
marked "NB25".
243 Thus, the focus of MTN and Vodacom on the negative net termination position
produced by the 2014 Regulations for them is apt to mislead and obscure the
true issues. This negative net termination position does not mean that MTN
and Vodacom are making a loss on such calls (incoming and outgoing) and
does not demonstrate irreparable harm.
244 The most that MTN and Vodacom can say is that their profits derived from
termination (from incoming calls only) will be reduced during the first year of
operation of the 2014 Regulations - but this does not amount to a showing of
irreparable harm sufficient to justify the interim interdict sought.
245 For MTN and Vodacom to make out a case of irreparable harm based on a
reduction of their profits, they would need to deal with the counter-factual
position - that is what the profits would have been but for the enactment of the
2014 Regulations.
246 They seek to do so by comparing their position under the 2014 Regulations
with their position under the 201.0 Regulations. But this is not ttfe ·approprlate
counter-factual because MTN and Vodacom do'not dispute that the termination
rates under the 2010 Regulations (and the.refore their profits from call
termination) are too high and could legitimately be reduced by ICASA.
246.1 For example,
246.2 Similarly, and again as set out above, Vodacom recognised in its one
on-one meeting with !CASA on 7 November 2013 and in its written
submissions that !CASA should adopt an interim mobile termination rate
below the existing rate, pending the development of a BULR!C model.
This too amounts to an explictt recognition that the existing call
termination rates under the 201 O Regulations did not reflect actual
termination costs and that there would be scope for further reductions.
246.3 Vodacom has publicly restated this position. I refer in this regard to an
article which appeared in the Business Day of 26 February 2014. In
that article, Vodacom was said to be standing by a proposal that an
interim cut in termination rates be implemented immediately and was
quoted as saying: "This wifl ensure that rates continue to come down
and at the same time provide breathing room to folfow the correct
legislated process to determine the fin BI rattts". A copy of the article is
attached as uNB26",
247 MTN and Vodacom do not and could not suggest that lCASA was not
empowered to set lower call termination rates than under the 2010 Regulations.
The setting of such rates is a matter for the exercise of ICASA's discretion.
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248 It is therefore simply untenable for MTN and Vodacom to make out a case for
irreparable harm by relying on the 201 O Regulations to calculate their reduced
profits.
The scale of the call termination rate reductions is not unprecedented
249 MTN and Vodacom place significant store in the scale of the reduction in call
termination rates produced by the first year of the 2014 Regulations - that is
from' 40c to 20c.
250 However, the full history of mobile call termination rate reductions in South
Africa demonstrates that this reduction is by no means unprecedented.
251 Mobile cal! termination rates were only first formally regulated in 2011, and this
is also when asymmetry was introduced. However, the history of reductions in
these rates goes back further to 2009. This is because during the period 2009
to 2011, decreases in mobile call termination rates occurred by agreement
between the operators. This was because of pressure on them from state
agencies and in anticipation of formal regulation being introduced. (I note that
MTN has itself contended previously that althOugh the initial reductions from
2009 to 2011 were not by regulation, they remain relevant in considering the
industry and the appropriate level of reductions to be made. I refer in this
regard to sections 3.2.4 and 4.5.1 of MTN's June 2010 submission to ICASA,
attached as "NB27".
1~61
252 The mobile cal! termination rates from 2009 up to and including the first year of (payments less receipts) as reflecting "profits" or "losses" as MTN and
the 2014 Regulations are set out in the following table: Vodacom do Jn their founding papers;
255.2 Under the first year of the 2014 Regulations, MTN and Vodacom wm
MTRs that MTN and continue to make profit on both calls terminating on their own networks
Vodacom mav charae 01-Mar-09 R 1.25 and calls emanating from their networks and terminating on the
01-Mar-10 R 0.89 01-Mar-11 R 0.73 networks of Cell C and Telkom Mobile;
01-Mar-12 R 0.56 01-Mar-13 R 0.40
I 01-Apr-14 R 0.20 255.3 The most that MTN and Vodacom can say is that their profits (from
incoming calls only) will be reduced, relative to the position under the
''2010 Regu!ati"lns; and
253 Of critical importance for present purposes is that the cumulative reduction in 255.4 This does not amount to an adequate demonstration of irreparable harm
the call termination rates of MTN and Vodacom from 2009 to 2013 (a four year given that it is effectively not in dispute that the termination rates set by
period) was 85c, from R1.25 to 40c. This represents an average annual the 2010 Regulations were much higher than the actual cost of
decrease of just over 21c. termination and that !CASA was legitimately entitled to reduce them.
254 In relation to the 2014 Regulations, the reduction for the first year will be from 256 There is a further point that should be emphasised in this regard. While MTN
40c to 20c - that is a reduction of 20c. That is therefore less than the average and Vodacom seek to paint a picture of the effect of 2014 Regulations on their
annual deductions in mobile call termination rates from 2009 to 2013 and just businesses, this is not tenable. The impact on the overall business of MTN and
over half the drop experienced from 2009 to 2010. Vodacom of reduced termination revenues and a Worsened net termination
position will not be significant and cannot amount to -irreparable hann.
257 This is most starkly demonstrated by the performance of both MTN and The harm relied on is speculative and untenabla
Vodacom in the previous period of termination rate declines accompanied by
255 [ have explained above that: asymmetry from 2009 to 2013 set out above. Economists refer to such
255.1 It is incorrect to examine the so-called net termination position comparative periods as "natural experiments" which provide important insights
1~63
into the overall effect of certain events and are far more reliable indicators than
the speculative arguments put forward by MTN and Vodacom. The effects in
the first period of regulated declines in termination and asymmetry provisions
are therefore good indicators of what to expect following the imposition of the
new regulations.
258 The reductions experienced by MTN and Vodacom in termination revenues
have not prevented total revenue and voice revenue from growing over the
period between 2009 and 2012 1 as shown in the tables below. This is so
desPite, termination revenue decreasing over this period.
MTN SA FY 2009 FY 2010 FY 2011 FY 2012 CAGR Total Revenue fRml 33 149 35 822 38 597 41 349 6% Voice revenue fRm) 17 885 19 297 20 106 21 100 4% Termination revenue rRm) 7 271 6 568 5 924 4 925 -9o/o
Vodacom SA FY 2009 FY 2010 FY 2011 FY 2012 CAGR Tota! Revenue CRml 47 483 50431 53 371 56 932 5% Voice revenue (Rm) 25 771 27 422 28 584 29 395 3°/u Termination revenue (Rm) 7 985 8 075 6 755 6 062 -70/<J
259 Furthermore, MTN's overall profits, which represent its .ability to· invest and
grow, during the first period of regulation were.·in no significant way reliant on
termination revenues or its net termination pos1lfon, nor were they harmed in
any manner. The position in respect of Vodacom ·was similar. This is
demonstrated by the tab!e below. (The figures for MTN are drawn from
paragraph 39.2 of its founding affidavit, while the figures for Vodacom are
drawn from its financial statements.)
1~64
EBITDA fR millions) FY 2010 FY 2011 FY 2012 CAGR MTN SA 12 188 13 591 14 476 9% Vodacom SA 18 578 19 653 21 254 7% Termination position as a FY 2010 FY 2011 FY 2012 CAGR "/o of EBITDA MTN SA 12.2% 8.7°/o 5.3% -24% Vodacom SA 9.4% 5.5% 5.4% -17%
260 As can be seen, EBlTDA grew at a compound annual growth rate (CAGR) over
the three years of 9%1 for MTN South Africa and 7°/o for Vodacom South Africa.
At the same time the percentage of EB!TDA taken up by the net termination
position declined at CAGR's of 24% and 17%, respectively, for MTN South
Africa and Vodacom South Africa. In other words, even as the net termination
position emphasised by MTN and Vodacom in their founding papers worsened,
their overall profits continued to grow. The effect of the first round of regulation
in reducing the net tern:iination position clearly has not negatively impacted on
the overall profits of either MTN South Africa or Vodacom South Africa.
261 The same picture emerges when reviewing the investment actiVities of MTN
and Vodacom over the past four years. The table below presents annual capital
expenditure ("CAPEX") figures "for MTN and Vodacom ov~r the pel'iod 2009 to
2012, taken from annual financial statements ~nd results presentations. !t also
includes MTN's average annual CAPEX for the preceding period of 2006 to
2008.
Capex(Rm) Average FY 2009 FY ea ex 2010
FY 2011
FY 2012
CAGR
2006-2008
MTN SA R3.4bn 6 034 3 908 4105 6 416 2% Vodacom SA 4 627 4573 5100 6 976 11%
I Source: Annual reoorts and results Oresentations
262 Vodacom's annual CAPEX continued to grow throughout the period of declining
termination rates and asymmetry. MTN did invest an unusually high amount in
2009 in comparison to previous years, but taken over a longer period, MTN's
CAPEX also continued to grow throughout the period of declining termination
rateS and asymmetry. MTN's average CAPEX in the period 2006 to 2008 was
approximately R3.4bn. The corresponding average for the period 2009 to 2012
was approximately R5.1bn. MTN's CAPEX during the first regulation period
improved on average over the three year period preceding regulation.
263 The simple reason why investment spending did not decline significantly over
the first regulation period is that overall profits grew, as shown earlier. These
represent one of the resources used for CAPEX along with borrowings.
264 MTN's own statements confirm all of the arguments above. MTN states at
paragraph 100 of its founding affidavit that "MTN has· invested many bt1/ions of
rands in its voice network since 2010." MTN c~nfirms in paragraph 39.3 of its
founding affidavit that the changes under the 201 O Regulations did not translate
into a large reported EBITDA decline.
265 Thfs evidence is highly significant given that at the beginning of the 2010
Regulations, MTN's termination position was nearly R1 .5bn
approximately R1 .75bn. On MTN's own admission MTN's termination position
decreased by almost R1bn over the 2010-2013 period, and this reduction has
not reduced its total revenue or profits. Neither MTN nor Vodacom has been
harmed by the significant reductions in termination revenues and net
termination position resulting from the first round_of regulations. Going forward
into the 2014 Regulations, MTN and Vodacom have even less termination
revenues to lose, and will therefore be even less affected than they were over
the first regulation period.
266 lt is also important to note that many of the dire predictions made by MTN and
Vodacom regarding the effect of the 2010 Regulations have not come to
fruition.
266.1 For example, in its submissions to !CASA regarding the 2010 draft
regulations, {attached marked "NB28"), Vodacom stated:
266.1.1 "the proposed glide path from the current MTR to R0.40 is far
too aggressive, and will significantly impact on the wholesale
and price structures of the South African communications
industry. Speciflc_afly, we note that th_e Authority is proposing a
50% decline in MTRs in the J)Urrent financial year. This will
have signdicant negative imp.acts on prevailing business
models" (p 2);
266.1.2 "Vodacom respectfully submits that the proposed additional
reduction to the mobile termination rate to be implemented by
01 July 201 O would effectively result in the impfementation of
an immediate and very significant wholesale price reduction
which, as noted by the Authority, will impact negatively on
business plans and capital expenditure programmes of the
affected operators. . .. we anticipate significant disruption to the
South Afr(can communications industry structure. Vodacom
recommends that the Authority should ensure that industry
disruption is minimised as much as possible" (pp 5 - 6);
,,266.1.3 " ... the proposed addftional reduction to be implemented by 01
July 2010 would effectively result in the implementation of an
immediate and very significant wholesale price reduction which,
as noted by the Authority, wifl have negative impacts on the
industry and the market as a whole~ (p 24).
266.2 Despite these dlre predictions, Vodacom's conceded in its submission
to !CASA on 22 November 2013 that the 2010 Regulations" ... did not
result in job losses or significant changes in Vodacom's investment
plans" (see annexure V? to Vodacom's affidavit, at page 5). In fact, I
understand that Vodacom's revenue, traffic and subscriber growth
trends have been positive.
267 Similarly, even if the net termination position ls relevant (which it is not) it does
not necessarily follow that reductions in termination rates, even in the presence
of asymmetry, will inevitably reduce a mobile operator's net termination
position. This is because the call flow depends on a range of factors and not
~f
just call termination rates (or relative rates).
267 .1 For example, Vodacom claimed in May 2011 that " ... Vodacom would
lose R1 .5 billion in revenue, and would incur a net interconnect loss of
R500 mtf/ion, due to the March 2011 MTR cut imposed by /CASA. In
realfty, Vodacom's annual interconnect revenue dropped by
R693 million, while its termination rate expenditure decreased by
R759 million, resulting in an improvement of R66mi/lion in Vodacom's
net interconnect positlonn. l refer in this regard to the Policy Brief SA No
2, November 2012, p. 2, which is attached as "NB29".
267.2 Similarly, and as outlined earlier, •••••••••••••
268 The Implication is that it is simply not possible for MTN and Vodacom to
speculate on the net effect of the call termination regulations based on current
call patterns. As indicated above, these call patterns are influenced by a range
of factors and the evidence from the previoUs round of tennination rate
reductions and asymmetry provided results which were completely contrary to
that predicted by MTN and Vodacom in their founding affidavits and indeed the
claims made at the time of the original reductions in termination rates and
asymmetry.
1~69
269 The best measure of what the expected outcomes wi!I be from the 2014
Regulations is in fact what occurred under the 2010 Regulations and this
demonstrates that there was no irreparable harm to either party and that none
of the dire consequences predicted occurred in practice.
Alleged impacts of asymmetry on market structure and the businesses of MTN and Vodacom are overstated and will not cause irreparable harm
270 The only possible harm that remains is the speculative claim that reducing the
termination rates of MTN and Vodacom for the year beginning on 1 April 2014,
while leaving the termination rates of Cell C and Telkom Mobile unchanged, will
have some effect on the ability of MTN and Vodacom to compete, meaning that
they may lose market share.
271 I emphasise two points in this regard:
271.1 First, the notion that MTN and Vodacom will sit back passively and
simply allow Cell C and Telkom to gain market share is not sustainable
as a matter of logic or experience. MTN and Vodacom hold a
commanding position in the market already, with the bulk of market
share inc!uding contract subscribers. This posi~io~ of strenQth along with
substantial profits p!aces them in a position to defend their market
position. This is precisely what they have done in the past.
271.2 Second, to the extent that the 2014 Regulations and the asymmetric
position they adopt may have an effect that MTN and Vodacom have to
compete harder with Cell C and Telkom Mobile to maintain their
1~70
substantial existing market shares, this does not constitute cognisable
harm for purposes of the interim interdict sought. Indeed it is not "harm"
at all. To grant an interim interdict on this basis would be to suggest that
MTN and Vodacom have some right to exercise significant market
power to the detriment of their competltors and consumers. This is not
tenable.
272 The evidence from the 201 O Regulations demonstrates the position
persuasively.
272.1 Price competition in the retail market intensified as a result of the 2010
Regulations. This competition was sparked by Cell C being able to
significantly reduce its off-net prices on the back of significantly lower
termination rates. Cell C introduced this price decrease in May 2012,
during the second year of the 2010 Regulations.
272.2 The price decrease significantly reduced off-net call rates from R2.85 to
99c, and also aligned them with on-net call rates. This flat-rate offer was
the lowest in the market at the time.
272.3 l refer in this regard to the RIA Policy Brief SA' No 2, November 2012,
p 5 (attached as annexure NB29).
272.4 For a small operator, aligning on-net and off-net call rates is critically
important in enabling it to become a more effective competitor. Because
the operator is small the majority of the calls its customers make will be
to customers of rival operators, which ln South Africa will usually be one
10;/J
of the two large operators. lf off-net call rates are expensive, there is
very little incentive to join the smaller network, and even less incentive
to switch to it and away from one of the large operators. As the smaller
operator's off-net call rates come down, this incentive grows. When the
smaller operator's off-net call rates equal its on-net call rates, customers
face no price-based disincentive to join the smaller network, and the
smaller network's existing customers have no disincentive to making
off-net calls.
272.5 The evidence of this effect is clear from Annexure· ZB9 to MTN's
founding affidavit. ••••••••••••••••••••
273 Unsurprisingly, MTN and Vodacom did not simply sit back and allow Cell C to
increase its market share. Rather they responded to this increased price
competition.
273.1 Vodacom responded directly to Cel! G's 99c package with a promotional
pre-paid offer ca!led Freedom 99, which set the same price (99c) for
calls to al! networks. Again, 1 refer to the RIA Policy Brief SA No 2,
November 2012, p. 5 (annexure NB29) in this regard. Vodacom also
stated in its 2012 annual report that "In South Africa, competitive
~\'.)
~
pressure played a big part. in us !owen'ng our effective pricing for voice
and data," and that "Our promotional offers brought down our effective
price per minute in South Africa by 13.6%." A copy of pages 48 and 50
of the report is attached marked "NB30".
273.2 MTN also acknowledges that the market has seen aggressive price
competition recently, and adds that it has responded to this competition,
albeit slowly in its view. This appears from MTN's interim results for the
period ended 30 June 2013, attached as "NB31".
273.3 ';1 refer also in this regard to the interview given by MTN's CEO on Radio
702 on 14 August 2013, referred to in paragraph 6.1.11 of Cell G's
submissions on the draft 2013 regulations. In that interview, the CEO
admitted that there had been price competition driven by Cell C, to
which MTN had been forced to respond.
273.4 l reiterate that this is unsurprising. Typically, operators such as
Vodacom and MTN respond to increased price competition from smaller
operators by reducing on-net call prices to retain their customers.
Vodacom confirmed in its 2010 annual report that lower on-net pricing
by all operators contributed to a decline in its termination revenue,
because consumers responded to these On-net price decreases by
increasing their usage of more than one SIM card. I refer in this regard
to page 36 of Vodacom's 2010 annual report, a copy of which is
attached as "NB32".
273.5 The rationale underlying this strategy is based on the opposite of the I{
!J~ '
1~73
dynamics described above, Because each of the operators concerned
is large, a significant proportion of their customers' calls will be on-net,
to other customers on the same network. By offering lower on-net call
prices the large operator dampens the incentive its customers face to
seek better value from a smaller operator's prices.
274 The fact that the two large operators can and have responded to increased
competition from smaller operators means that the smaller operators have not
rapidly gained market share. According to the figures set out in paragraph 14.2
of th'e .MTN founding affidavit, Cell G's share of total subscribers increased
slightly between 2012 and 2013, from 15o/o to 17o/o and MTN's share of
subscribers dipped slightly from 37%i to 36o/o between 2012 and 2013, as did
Vodacom's, from 46% to 45°/o. Other estimates suggest that MTN's share of
subscribers has stayed at 37°/o. No increase in subscriber share for Telkom
Mobile has been reported; this share is estimated to have remained at 2°/o. (I
refer in this regard to paragraph 40.2 of the MTN founding affidavit and the RIA
Policy Brief SA No 1, July 2013, attached as uNB33".)
275 Moreover, a smaller network's increased subscriber share. does not
automatically translate into proportional increas_es in shares of revenue. -
276 There are two reasons why gaining customers does not automatically translate
into higher revenues and a greater share of the market as measured by
revenue.
276.1 First, as demonstrated above in the context of the bilateral relationship
between Cell C and MTN, ••••••••••••••••
276.2 Second, the type of subscriber gained by smaller operators and lost by
MTN and Vodacom matters. As MTN has explained at paragraph 151 of
its founding affidavit, post-paid customers are high-value, high-usage
·customers, and exert a disproportionate impact on voice revenues and,
therefore, changes in revenue shares when they switch networks.
These customers are more difficult for a smaller operator to gain
because, as MTN argues in the same paragraph, they are locked into
contracts lasting 18-24 months. Furthermore, it is safe to assume that
most South Africans who can afford a contract already have one. Pre-
paid customers, on the other hand, are free to switch networks
whenever they choose, but tend to play a less significant role in
determining revenue and profit growth because they are low-usage,
low-value customers.
277 Finally, additional non-price factors inhibit rapid riiarket share realignment.
277.1 As MTN has pointed out, its market research shows that price is not the
most important factor driving consumer choice in the mobile telephony
industry. For MTN's customers, network coverage remains the most
1~75
important factor, with price second, network quality and reliability third,
and quality of service fourth. I refer in this regard to annexure Z89 to
MTN's founding affidavit.
277.2 Smaller operators, who entered late, typically battle to match the
network coverage and network quality achieved by the SMP operators.
Being smaller requires having to manage higher unit costs due to lower
economies of scale as well as having to lead on retail price cuts to
attract customers, who are in any event likely to be !ow-value
,customers. These factors combine to hamper profitability, in turn limiting
smaller operators' ability to generate sufficient resources for investment.
Cell C, for example, began offering 3G data services only in 2010
despite launching in 2001. Vodacom and MTN began offering 3G
services in 2005.
277 .3 These non-price disadvantages inherent to late entry wHI not be quickly
overcome even if smaller operators earn significantly greater
termination revenues and gain significantly higher shares of
subscribers, which to date has not occurred and is not likely to occur in
the next three years.
278 The reliance by MTN and Vodacom on the effe"ct of the 2014 Regulations on
the market therefore cannot provide a basis for the interim interdict This is
especially the case given that for present purposes only the first year of the
2014 Regulations is at issue.
THE ISSUE OF THE BALANCE OF CONVENIENCE
279 In dealing with the balance of convenience, it is again important to bear in mind
JCASA's decision to:
279.1 engage in a reconsideration of the termination rates applicable for the
years beginnlng 1April2015 and 1 April 2016; and
279.2 repeal the 2014 Regulations insofar as they purport to regulate call
termination rates beyond 31 March 2015.
280 This 'm_eans that there are essentially two options before this CJurt.
280.1 The first would be for this Court to dismiss the application for the interim
interdict and allow the 2014 Regulations to come into force. Those
2014 Regulations would, however, only then regulate call termination
rates for a year, during which period lCASA will reconsider the question
of future termination rates.
280.2 The second would be for this Court to grant the order sought by MTN
and Vodacom and direct that a!l relevant provisions of the 2014
Regulations are prevented from coming into force_for a peri·od of many
months, if not years. In other words- MTN and Vodacom would have
succeeded in preventing the 2014 Regu.lations having any substantive
effect during what ought to have been their first year of operation.
281 When these two options are considered, the balance of convenience plainly
favours tCASA, rather than MTN and Vodacom. This is so for the following
~~t
reasons.
282 If the order sought by MTN and Vodacom in Part A is granted, there will be no
way at all of remedying the harm to the smaller operators and to the public that
has been caused for the period of months or years for which it endures.
282.1 For the period of a year commencing on 1 April 2014, !CASA's hands
would be tied. Because the call termination rates set by the 2010
Regulations would no longer be in force, this would lead to the lacuna to
which I have referred earlier, leaving call termination rates unregulated.
282.2 Alternatively (and at best for Vodacom and MTN) the 201 O Regulations
would remain in force. However, this too would be highly prejudicial
given that it is indisputable that the termination rates set by the 2010
Regulations are well above cost and that !CASA is legitimately entitled
to reduce them. 1 have referred above to the concessions made by MTN
and Vodacom in this regard.
282.3 The only offer that MTN and Vodacom make in an effort to alleviate th!s
problem is their offer to pay the additional amounts to Cell C and
Telkom Mobile if, at the end of Part B, they are to fail.
282.4 This is no comfort at all to the public, ICASA, Cell C and Telkom Mobile.
It wiH still mean that:
282.4.1 During the year commencing on 1 April 2014, there will be no
reduction in call termination rates to drive down the prices paid
by consumers. In other words, from the point of view of
consumers they will inevitably be left with the same high prices
that they are currently paying.
282.4.2 Moreover, the people who will truly be out of pocket will be the
millions of consumers affected. They will all have suffered
financially because the prices will not have come down and
they will have no way of claiming this money back from anyone.
The offer by MTN and Vodacom to belatedly pay Cell C and
Telkom Mobile does nothing at all to remedy this prejudice on
the part of consumers.
283 By contrast, dismissing Part A of the application will cause little or no
irreparable harm to MTN and Vodacom.
283.1 The 2014 Regulations will then come into force on 1 April 2014, but will
set call termination rates only for the period of a year.
283.2 During that year, the harm caused to MTN and Vodacom by being
subjected to lower tennination costs would not be irreparable.
283.3 As indicated above there ls no dispute if! these proceedings that the 20c
figure applicable during this period is above MTN and Vodacom's costs.
Thus, they would continue to make a profit.
283.4 In any event, as I have indicated, the "harm" caused by the asymmetric
rates amounts to little more than the fact that MTN and Vodacom may
have to compete more strongly against Cell C and Telkom Mobile to
retain their existing significant market shares.
284 Finally, I submit that what must weigh heavily with this Court is that granting the
order sought by Vodacom and MTN in Part A will haye the effect of stymieing
and impeding !CASA's statutory role as an independent sector regulator,
specifically responsible for dealing with these issues. I have already explained
the nature of ICASA's remit to regulate call termination rates. 1 reiterate that
granting MTN and Vodacom relief would involve this Court intruding, via the
granting of an interim interdict, into a heavily policy-laden and polycentric
environment.
285 I am advised that the Constitutional Court has repeatedly re-affirmed that if
such an interim interdict can be granted at all, this is only in "the clearest of
cases" and after careful consideration of the harm caused to separation of
powers as part of the balance of convenience enquiry. The present case does
not merit such an intervention. This is especially the case given that no
fundamental rights of MTN or Vodacom are at issue and the interdict sought
would certainly involve a severe intrusion into the separation of powers
286 In all the circumstances, the balance of conve~ience plainly operates against
the granting of the interim interdict.
287 I now turn to deal, to the extent necessary, with ICASA's ad seriatim response
to the founding and supplementary affidavits of MTN and the founding affidavit
of Vodacom. J emphasise that I have already covered virtually all of the
material issues above and ! will seek to avoid unduly burdening the papers and
will therefore not deal again with issues that have already been dealt with, My
responses below must accordingly be read with the remainder of this affidavit.
288 1 emphasise that where an allegation or contention contained in the founding or
supplementary affidavits of MTN or the founding affidavit of Vodacom is
inconsistent with what is stated in this affidavit, it must be taken to be denied by
ICASA.
AD SERIAT,l.M RESPONSE TO THE FOUNDING AFFIDAVIT OF MTN
AD PARAGRAPHS 1 - 3
289 Save to deny that the facts and contentions contained in the founding affidavit
of MTN are true and correct or all within the personal knowledge of the
deponent, I note the contents of these paragraphs.
AD PARAGRAPHS 4-12
290 Save to admit the allegations in paragraph 61 I note the contents of these
paragraphs.
AD PARAGRAPHS 13 -16
291 Save to deny that the 2014 Regulations are irregular and unlawful and to point
out that the 2014 Regulations will now commence operation on 1 April 2014, I
note the contents of these paragraphs.
AD PARAGRAPHS 17 • 22
292 I have explained the process of interconnection above. To the extent that what
was set in these paragraphs accords with what I have said I do not take issue
with the contents of these paragraphs.
AD PARAGRAPHS 23- 38
293 Save to say that the provisions of the EGA, the provisions of the 2010
Regulations and the provisions of the 2014 Regulations speak for themselves, I
note the contents of these paragraphs.
AD PARAGRAPH 39
294 While I do not dispute the correctness of the arithmetic calculations performed
by MTN and referred to in this paragraph or the allegation in paragraph 39.3
that the 2010 Regulations did not result in a large reported EBlTDA decline for
MTN, I deny that the analysis and conclusions sought to be drawn are wel!
founded and relevant to this application.
295 In particular, ! deny that there is any basis for the allegation that the reductions
under the 2010 Regulations "had negative fina~cial implications for MTN" and
"has had a negative impact on MTN's business".
296 ! have above dealt with the manner in which MTN (and Vodacom) have
misunderstood and/or mischaracterised the effects of a reduction in termination
rates and the flaws in their analysis in this regard. The present analysis suffers
from the same flaws.
AD PARAGRAPH 40
297 Save to deny that the exercise performed by MTN has any relevance to this
application, l have no personal knowledge of the allegations contained in this
paragraph.
AD PARAGRAPHS 41 • 48
298 The zd14 Regulations speak for themselves.
AD PARAGRAPH 49
299 The contents hereof are noted. I refer to what is stated above regarding the
process that preceded the publication of the 2014 Regulations.
AD PARAGRAPHS 50 - 51
300 The contents hereof are admitted.
AD PARAGRAPHS 52 - 55
301 The contents hereof are admitted, I refer to what is stated above regarding the
process that preceded the publication of the draft 2013 regulations.
AD PARAGRAPHS 56 -58
302 Save to deny that the Jetter of 4 November 2013 was "curt", the contents hereof
are admitted. I refer to what is stated above regarding the contents of these
letters.
AD PARAGRAPH 59
303 I have dealt above with the allegations in this paragraph.
AD PARAGRAPHS 60 • 63
304 The contents hereof are admitted. I refer to what is stated above regarding the
contents of these letters.
AD PARAGRAPH 64
305 The contents hereof are admitted.
AD PARAGRAPH 65
306 I deny that there was a "significanf' diffeTence petween the maximum
asymmetry rates in the draft 2013 regulations and the final 2014 Regulations.
The same principle was applied in both, and while the \eve!s of asymmetry over
the glide path were increased in the 2014 Regulations, the duration of the glide
paths (Le. the period over which there would be asymmetry) was reduced.
307 I deny further that the change wil! have an "even more prejudicial impacr on
MTN as it suggests. MTN has put up noting to support this dramatic allegation.
AD PARAGRAPHS 67 - 68
308 This is a matter for legal argument.
AD PARAGRAPH 69
309 I admit the correctness of the second, third and fifth sentences in this
paragraph.
310 Save as aforesaid, l deny the allegations contained in this paragraph. They are
based on an absurd and therefore unsustainable reading of regulation 8 of the
201 O Regulations that would result in an improper fettering by ICASA of its duty
to properly exercise its powers and perform its functions. To the extent that
MTN and/or Vodacom persist in advancing this as a ground of review, it will be
addressed in argument at the hearing of the application.
AD PARAGRAPH 70
311 I have explained above that ICASA did follow the process prescribed in section
67(8) of the ECA.
312 As has been noted above, it was made petfectly clear in the "cost to
communicate" document released in June 2013 that ICASA took the view that
its previous market definition or SMP determinations did not require any
changes. In setting out the purpose of the regulations, the market definitions,
the parts of the methodology used in determining the market definition and the
SMP determination !CASA was simply repeating the conclusions that it reached
in the 201 O Regulations.
313 This did not constitute an attempt to start the analysis "afresh", and MTN has at
all relevant times been aware of this.
AD PARAGRAPHS 71 - 72
314 The contents hereof are denied for the reasons set out elsewhere in this
affidavit and Which will be advanced in argument at the hearing of the matter.
AD PARAGRAPH 73
315 The contents hereof are denied for the reasons stated elsewhere in this
affidavit.
AD PARAGRAPH 74
316 1 have explained above why the repeated refrain .ab6ut not having access to the
underlying cost data upon which !CASA relied for the· glide path is not a valid
complaint.
317 The methodology that ICASA sought to utilise in determining proposed
1~86
termination rates was precisely that which had been proposed by MTN in its
response to the 2013 questionnaire. It must therefore have been perfectly plain
to MTN that ICASA had determined the proposed rates on the basis of the
information gleaned from that exercise. Furthermore, as noted above, it is clear
from Vodacom's written submissions that this was also apparent to Vodacom.
318 As is apparent from what is stated elsewhere in this affidavit and despite
persistently being asked by !CASA to provide relevant information, both MTN
and Vodacom at all times prior to the publication of the final 2014 Regulations
declihed to demonstrate what their actual termination costs were. They
continue to decline to do so.
319 As indicated above, the reasons for proposed asymmetry were set out in the
explanatory memorandum to the draft 2013 regulations, and were not based on
any "data", other than the fact that a review of the market in 2013 showed that
there were marked differences in the sizes of the four mobile operators and so
imposing the same glide path on each of them would not be appropriate.
AD PARAGRAPH 75
320 ! have explained above why the decision to hOld on-on-one meetings resulted
in a more meaningful opportunity for the licensees to be heard than would have
been the case in public hearings.
321 I therefore deny that this did not comply with the requirements of procedural
fairness.
AD PARAGRAPH 76
322 I refer to what is stated above regarding the allegalion that there was a
"significanf' difference between the maximum asymmetry rates in the draft
regulations and the final regulations.
323 The submissions that were made to !CASA regarding the asymmetry that was
proposed ln the draft regulations ranged from a submission that the asymmetry
should be lower and last for a shorter period (e.g, MTN) to a submission by Cell
C that the asymmetry should be higher tor the initlal four year period and
continue (at a slightly lower level) for an even longer period. The level and
duration of asymmetry ultimately adopted by !CASA in the flna! regulation fell
within this range, both In relation to duration and extent.
AD PARAGRAPHS 77 - 78
324 The contents hereof are denied for the reasons set out elsewhere in this
affidavit and which will be advanced in argument at the hearing of the matter.
AD PARAGRAPH 79
325 VVhiJe r do not dispute that MTN's summary· in this paragraph is broadly
accurate, l do not understand the relevance of the allegatlons in this -paragraph
and an1 unable to respond rneanfngfully to thern, save to reiterate that !CASA
evaluated the state of cotnpetition between the 1nobile operators in relation to
the setting of call termln-atJon rates as part of its review of those rates in 2013, !
have explained thls above.
AD PARAGRAPH 80
326 Save to admit the contents of regulations 5 and 7(1), and paragraph 5 of the
explanatory memorandum, insofar as MTN has accurately quoted from them, I
deny the allegations contained in this paragraph.
327 I cannot conceive that MTN genuinely does not understand the approach taken
by l~ASA in determining that there is continued ineffective competition in
relation to the setting of termination rates.
328 I have explained above that !CASA determined that pricing for termination of
calls on mobile networks was inefficient because a number of exercises !CASA
performed all confirmed that termination rates were still well above the actual
cost of termination and that mobile operators were not charging at or even near
cost. This is the market failure that the regulations are intended to address. The
purpose of the regulations is to set rates that are cost-oriented i.e. that would
result were there effective competition.
329 l have also explained that the reason ICASA reached different conclusions as
to what those costs were in 2010 and 2013 was in large part because it used
different costing methodologies for the two analyses.
330 The reference in the 2014 Regulations to the "distortion in the termination rates
payable in and between the two markets" is clearly a reference to the different
termination rates set for termination on a fixed-line network and termination on
a mobile network. I have explained above that !CASA has concluded, based on
submissions made to it during the 2013 process, that there is no significant
difference in cost between the two, a point emphasised in paragraph 5.4 of the
explanatory memorandum.
AD PARAGRAPHS 81 AND 82
331 I deny the allegations contained in these paragraphs, for the reasons set out in
this affi9avit.
AD PARAGRAPHS 83- 86
332 Insofar as MTN has correctly reproduced various provisions of the 201 o and
2014 Regulations I admit the allegations contained in these paragraphs. Save
as aforesaid I deny them.
333 As for the substance of MTN's complaint, I state that, as in the 2010
Regulations, lCASA has concluded that there is a single market for the
termination of calls on a mobile network, in which eac~ -C!Perator has SMP. This
is the market referred to as "market 1" in the reg~lations. The same market
definition was employed in the 201 O Regulations, about which MTN made no
complaint. ICASA has not, as MTN contends, identified separate markets for
each licensee's network.
334 !CASA has, in the 2014 Regulations, also recognised another relevant market,
being the retail market for the provision of voice calls by r,1obile operators.
!CASA has always recognised the relationship between these two markets (for
example, in paragraph 5.8 of the explanatory note to the 2014 Regulations and
paragraph 3.2 of the explanatory note to the 2010 Regulations). l have
explained above why ICASA determined to use share of revenue in the retail
market to determine who benefits from asymmetry.
335 The reference in regulation 7(3) (not 7(3)(b) as MTN suggests) to "markets" in
the plural is a reference to the two retail markets that are linked to the two
whol'esale markets defined in regulation 3 of the regulations - markets 1 and 2.
This is clear from regulations 7(3)(a) and (b). The reference to "relevant retail
markef' in paragraphs 2.1 and 2.2 of appendix A is similarly no more than a
reference to the fact that the regulation deals with two retail markets - the retail
markets linked to markets 1 and 2.
336 I accept that paragraph 5.10 of the explanatory memorandum is factually
incorrect when it records that lCASA employed this methodology in the 2010
Regulations. This error does not, however, ! submit have any material impact
on the substance of the regulations.
337 As for how share in this market is to be determined practically, I submit that
MTN is being obtuse in paragraphs 86.2 and 86.3 in suggesting that the term
has "no readily ascertainable meaning". It is obvious that the term refers to the
revenue derived from local voice telephony. I have dealt with this in the section
headed "The detennination of who benefits from the more gradual gHde path"
above. ! reiterate that I cannot conceive that any mobile operator does not
understand the meaning of this term in the regulations. I have set out examples
of its common use in the industry and will provide a fuller explanation, and more
examples, in this regard in answer to the review application itself.
338 For these reasons, ! specifically deny that the 2014 Regulations are void for
vagueness as MTN contends.
339 I also point out that in any event, even if there is a genuine dispute on this
issu~, the existence of such a dispute does not warrant the grant of interim
relief. !CASA has made the determination of market shares for the purpose of
implementing the regulations from April 2014 and MTN does not challenge this
determination. No further determination of market shares is contemplated in the
regulations until April 2017 (when footnote 1 of appendix B indicates that very
small operators may be entitled to claim ongoing asymmetric rates).
340 Finally, the complaint in paragraph 86.3 that MTN did not have "an opportunity
to explain" that the term "retail revenue market share" has "no readily
ascertainable meaninfi' is not tenable given that the contention is manifestly
wrong.
340.1 Any reasonable reader wou!d understand that the term refers to share
of revenues from mobile voice telephony in South Africa when used in
the current context;
340.2 The licensees were aware that they had been asked, in the 2013
questionnaire, to answer a set of questions relating to their retail
revenue;
340.3 Neither MTN nor Vodacom suggest that market share of retail revenue
from voice telephony in South Africa is not an appropriate measure of
market share given that the wholesale call termination market is derived
from the retail market and the competition between operators that is
most relevant to consumers occurs in this market;
340.4 MTN itself regarded this as an important measure of market share and
"reported on it in its financial statements;
340.5 Neither MTN nor Vodacom suggests that this measure is not
appropriate for the purposes for which it is employed; and
340.6 In any event, the change had no actual effect on ICASA's determination
of the operators to whom asymmetry would apply.
AD PARAGRAPHS 87 AND 88
341 l deny the allegations contained in these paragraphs, for the reasqns set out in
this affidavit.
AD PARAGRAPH 89
342 Save to point out that when MTN refers to "the imposition of the glide path" it in
fact generally means the imposition of the base rate at the end of the glide
paths, and to deny that the imposition of either the base rate or any of the rates
in the glide paths is irregular as alleged or at all, I do not dispute the allegations
contained in this paragraph.
AD PARAGRAPHS 90 AND 91
343 ! deny the allegations contained in these paragraphs, for the reasons set out
above, in answer to the allegations in paragraphs 83 - 86 of the founding
affidavit.
AD PARAGRAPHS 92 AND 93
344 Paragraph 1.1 of appendix A refers to regulation 7(2), not 7(2)(a), the word
"prices" forms part of the sub-quote in the paragraph and the licensees in the
square brackets should include Telkom.
345 Save as aforesaid, I admit the allegations in these paragraphs.
AD PARAGRAPH 94
346 Table 1 contains three different rates. The purpose Of ihe table is to manage
the reduction of rates to the base rate over a periOd of time. I admit that the
base rate proposed in the table for 2016 was, in ICASA's view, oriented
towards, but stil! higher than, actual costs of terminating a call on a mobile
network at the time it was to be implemented.
347 Save as aforesaid, l deny the allegations contained in this paragraph.
AD PARAGRAPH 95
348 Save to state that ICASA determined that the cost of terminating a call on a
mobile network would be 1 De or less by March 2016, when that rate was to
introduced as the base rate, ! do not dispute the allegations contained in this
paragraph.
AD PARAGRAPHS 96 -102
349 I am advised that since !CASA has decided to repeal the 2014 Regulations
insofar as they set termination rates beyond 31 March 2015, these paragraphs
are not relevant and it ls not strictly necessary therefore to respond to them.
350 I do, however, wish to register ICASA's strong objection to MTN's
characterisation of the determination of the base rate as being unothing more
than a thumb-sue/(. I have explained above the various methodologies
employed by !CASA in this regard. I submit that it should be clear from what I
have set out that this disparaging statement is unfou.nd,ed. Jt is, Uiifortunately,
typical of the approach MTN has taken generaily in its discussions with !CASA
in this process.
351 I also reiterate that MTN has consistently declined to disclose its actual costs to
ICASA and has taken a similar approach with this honourable Court in this
application.
352 Insofar as might be necessary to respond to any of the other allegations in
these paragraphs:
352.1 I have explained the basis on which ICASA determined the base rate
above.
352.2 Save for the allegation that ICASA could not use the information
requested in the 2013 questionnaire to perform a cost study (a point l
have dealt with above), I do not dispute the allegations in paragraphs 97
and 98, but reiterate that there was no bar to MTN continuing to provide
'reports. There was simply no legal duty on it to do so, a technical
omission it elected to take advantage of to cease doing so.
352.3 The allegations in paragraph 99 are not relevant to any ground of
review and I am advised that in the circumstances it is not necessary to
answer to them 1 save to point out that since the modelling undertaken
by !CASA was based on financial data there is nothing irrational in the
requirement of regulation 7(4)(b) that licensees be obliged to provide
more direct evidence of their actual costs.
352.4 While l have no knowledge of the amount MTN h.as spent on developing
lts network, and therefore do not dispute the _allegation in paragraph 100
that it has spent billions of rand doing so, ICASA does not accept that
MTN is entitled to demand that the full cost of this expansion, or In fact
any of the cost of it, should be taken into account in determining
termination rates.
1~96
352.5 The manner in which !CASA dealt with termination rates for calls to a
fixed-line network in the 2014 Regulations has no relevance to an
assessment of the rationality or lawfulness of its determination of the
base rate and therefore I am advised that it is not necessary to respond
to the allegations in paragraph 101, although I point out that l have
given a brief summary of the process of setting call termination rates on
a fixed line network above.
AD PARAGRAPH 103
353 I deny the allegations .Jontained in this paragraph, for the reasons set out in this
affidavit.
AD PARAGRAPH 104
354 Save to admit that ICASA identified and sought to address four market failures
in the 2010 Regulations, l deny the allegations contained in this paragraph.
355 I do not admit that the provisions of section 67(8)(c) are applicable, but l submit
that it is not necessary for this honourable Court to d~termine this fssue. Even
if the section does apply, the imposition of the ~ase rate is a proportional
remedy for the ineffective competition ICASA identified.
356 In the 2010 Regulations ICASA put in place different conditions to deal with the
various market failures it had identified. In respect of the market failures of lack
of access, discrimination and lack of transparency (identified in regulation 7(1 )) /}.
{\ 1{!
\V.
1~97
!CASA imposed obligations on all licensees in regu!ation 7(2) to comply with
the Interconnection regulations (regulation 7(2){a)) and the compliance manual
regulations (regulation 7(2)(c)) to be prescribed, and additional obligations on
MTN and Vodacom in regulation 7(5)(a) to publish a standard RIO, to contain at
least the content specified in appendix A to the 201 o regulations.
357 In regulation 7(2)(c) of the 2010 Regulations, read with regulation 7(3) and
appendix A, ICASA put in place the remedy of regulated rates for the market
failure of inefficient pricing. This is manifestly the appropriate remedy and the
same remedy employed by ICASA in the 2014 Regulations to deal with the
continued market failure identified by it I cannot conceive that MTN does not
understand this.
AD PARAGRAPH 105
358 1 deny the allegations contained in this paragraph.
359 I have explained above, in answer to the allegations in paragraph 80 of the
founding affidavit, that the market failure is inefficient pricing in the wholesale
market for call termination (efficient pricing being cost~oriented). 1 have also
explained how !CASA has confirmed that current pricing is not cost~oriented. I
have explained finally that the imposition of the base rate is an appropriate pro-
competitive measure to remedy this inefficient pricing.
360 I reiterate that the statement in the explanatory memorandum which MTN
seeks to make so much of in paragraph 105.4 was manifestly aimed at
r~
explaining why !CASA had concluded that the base rate for termination on
mobile and fixed networks should be the same, not at why the base rate had
been set at 1 Oc for termination on a mobile network. I have explained above
that ICASA has concluded, based on submissions made to it during the 2013
process, that there is no significant difference in cost between the two, a point
emphasised in paragraph 5.4 of the explanatory memorandum.
361 ln any event, that MTN does not understand the explanatory memorandum is
no basis for the 2014 Regulations to be reviewed and set aside.
362 Finally, I have explained why !CASA anticipates that a reduction in termination
rates will lead to a reduction in retail rates. I deny that ICASA's views in this
regard render the imposition of the base rate subject to review as MTN appears
to suggest in paragraph 105.4.
AD PARAGRAPH 106
363 I am advised that since !CASA has decided to repeal the 2014 Regulations
insofar as they set termination rates beyond 31 March 2015, the allegations in
this paragraph are not relevant and it_ is not strictly -r.ieCessary therefore to
respond to them.
364 Insofar as may be necessary, however:
364.1 I do not concede the correctness of the data put up by MTN. MTN has
not attached the data or provided it to ICASA in any form that would
permit of its scrutiny or that otherwise establishes its reliability. As a
simple example, I have no knowledge as to the exchange rates MTN
has used to convert termination rates in other jurisdictions into South
African rands. I submit that the Court should place no reliance on this
data.
364.2 More importantly, I deny the relevance of the data.
364.3 Jn the first place, while benchmarking may provide a useful cross~check,
it can never be the sole basis on which a regulator determines
''termination rates in its jurisdiction for the simple reason that it cannot be
assumed that operators' costs are exact!y the same in different
countries. It cannot therefore, in my respectful submission, be a basis
on which to conclude definitively that a rate set by lCASA is or is not
reasonable.
364.4 As importantly, it is meaningless to compare a termination rate
proposed to be implemented in March 2016 with current termination
rates being charged in other parts of the world because it is generally
accepted that costs of termination are reducing over time. Jtis therefore
impossible to assess the reasonablene~s of the base rate proposed by
!CASA by reference to current base rates· in other parts of the world.
AD PARAGRAPH 107
365 l deny the allegations contained in this paragraph.
366 I have dealt, in the section on "irreparable harm", with the true extent to which
MTN's financial posltlon will be altered by the implementation of the 2014
Regulations.
367 I simply point out here that:
367.1 MTN will not make a loss from the introduction of the 20c tennination
rate. For as long as the regulated termination rate is above actual cost
of termination then MTN still makes a profit on every call it terminates
on its network;
367.2 The amount of R275 million that MTN refers to (and. which amount l do
not accept is in any way relevant) is less than 1°/o of its earnings for the
2013 financial year; and
367.3 The harm to competition MTN posits is entirely speculative and unlikely,
as I have explained above.
AD PARAGRAPH 108
368 I deny the allegations contained in this paragraph.
369 I deny in particular that comparing the manner jn whiCh !CASA has regulated
termination on a fixed network to the manner in w.hich it has dealt with
termination on a mobile network is of any assistance in detennining the
rationaltty or arbitrariness of the latter regulation.
370 Insofar as may be necessary, ! have explained how ICASA determined the
glide path for the mobile termination rate above.
371 I have also explained how ICASA determined the glide path for fixed network
termination rates above.
372 I reiterate that rates for termination on a fixed~line network are presently much
lower than for termination on a mobile network. 1 have explained that this
difference arose because of the different methodologies that were used to
determine the relevant costs.
373 In the circumstances, in order to achieve the same base rate in 2016, (-
•••••••••••••• , it is necessary to make more dramatic
reductions in the mobile termination rate over the period. Comparing the glide
path for markets 1 and 2 is therefore utterly unhelpful in considering the
rationality of ICASA's decision as to the glide path for market 1.
374 I also point out that the mobile operators have all benefitted as against fixed
line operators over the last three years by being able to charge significantly
higher termination rates than fixed line operators in c.irc.umstances-Where their
costs are not appreciably different, and that they continue to enjoy this
advantage under the guide path in the 2014 Regulations, since the termination
rates for market 1 will remain higher than for market 2 until the end of the glide
path.
AD PARAGRAPHS 109 AND 110
375 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
AD PARAGRAPH 111
376 I admit the allegations contained in this paragraph.
AD PARAGRAPH 112
377 I deny the allegations contained in this paragraph, for the reasons set out in this
affidavit.
AD PARAGRAPH 113
378 I deny the allegations contained in this paragraph. I have dealt with this point
above, in response to the allegations in paragraph 86 of the founding affidavit.
AD PARAGRAPH 114
379 While I accept that the 2014 Regulations do not contain a dispute resolution
procedure within them (although this is not a legal requirement), MTN does not
explain why this would constitute a basis on which to have the regulations set
aside. I deny that it would.
380 I also reiterate that ICASA has already made the determination as to which
mobile operators qualify for asymmetry from 2014, which determination MTN
does not challenge, and the difficulties MTN seeks to raise therefore simply do
not arise.
381 Finally, insofar as the 2014 Regulations envisage using share of retail revenue
to determine who will benefit from ongoing asymmetry, firstly, since !CASA has
decided to repeal the 2014 Regulations insofar as they set termination rates
beyond 31 March 2015 this is not a relevant issue but, even if it were, it is not
an issue that requires urgent interim relief, since the provision was only due to
come into effect in April 2017.
AD PARAGRAPHS 115-119
382 I deny the allegations contained in these paragraphs.
383 I have explained above that the levels of asymmetry in the 2014 Regulations
are not intended simply to reflect differences in termination costs. MTN's
complaint is therefore misplaced and its objections irrelevant.
384 I have a!so explained in the same paragraphs how !CASA arrived at the levels
of asymmetry that would apply during the glid.e path. I submit that it is clear
from what I set out that ICASA's determination Was not "a thumb~sucf{' as MTN
deprecatingly chooses to describe it.
AD PARAGRAPH 120
385 I deny the allegations contained in this paragraph, for the reasons set out in this
affidavit.
AD PARAGRAPHS 121 AND 122
386 I deny the allegations contained in this paragraphs. I have dealt with their
substance above.
387 I reitera'te that
387. 1 ICASA used the data provided by the mobile operators in response to
the 2013 questionnaire to determine who would benefit from asymmetry
at the commencement of the regulations. That data ended as at
December 2012;
387.2 MTN has not challenged ICASA's actual determination, namely that
MTN and Vodacom are above the threshold, Cell C and Telkom Mobile
below it;
387.3 lCASA deliberately did not provide fa~ revie\~/ of this determination
under the 2014 Regulations because. it ·still intended for smaller
operators to benefit from asymmetry for the entire period and because it
wished to provide certainty to them;
387.4 Nothing prevents MTN from requesting ICASA to review the 2014
Regulations if they operate unfairly against it.
AD PARAGRAPH 123
388 I deny the allegations contained in this paragraph.
389 I have explained above that the 10%1 threshold is used for a different purpose in
the 2014 Regulations, a point MTN seems not to appreciate. Since the purpose
of the threshold is different, there is clearly nothing irrational in its not being the
same figure.
AD PARA,GRAPH 124
390 ! deny the allegations contained in this paragraph.
391 Since !CASA has decided to repeal the 2014 Regulations insofar as they set
termination rates beyond 31 March 2015 this is not a relevant issue but, even if
it were, it is not an issue that requires urgent interim relief, since the provision
was only due to come into effect in April 2017
392 In any event, MTN's scornful allegations are unfounded. I have explained
above that the 2014 Regulations distinguish between two types ~f asymmetry.
MTN appears not to appreciate this.
AD PARAGRAPH 125
393 I deny the allegations contained in this paragraph.
394 In the first place, since lCASA has decided to repeal the 2014 Regulations
insofar as they set termination rates beyond 31 March 2015 this is not a
relevant issue but, even if it were, it is not an issue that requires urgent interim
relief, since the provision was only due to come into effect in April 2017
395 In any event, I am _advised that even if it were to be found that the 2014
Regulations are consistent with the "recommended approach" set out in the
explanatory memorandum, this would not constitute a basis for the setting
aside of those regulations, so that MTN's complaint is irrelevant to this
application.
396 l have also explained above that the asymmetry that is provided for after April
2017 is not inconsistent with !CASA's goal of general symmetry between
operators.
AD PARAGRAPH 126
397 I deny the allegations contained in this paragraph.
398 J submit that since ICASA has decided to repeal the 2014 Regulations insofar
as they set termination rates beyond 31 March 2015, the complaint in this
paragraph is no longer of any relevance in this application.
399 Insofar as it may still be relevant, while I do not dispute that the regulations in
the 2014 Regulations do not al! apply for exactly the same period I deny that
this should result in the Regulations being set aside.
400 Not only is it permissible for regulations to include provisions that apply for no basis for the regulations to be reviewed and set aside.
different periods, I have explained above why JCASA has set different glide
paths in the 2014 Regulations. l have also exp!alned that regulation 8 provides AD PARAGRAPH 130
for the review of those rates as necessary. 405 ! deny the allegations contained in this paragraph.
AD PARAGRAPH 127 406 1 do not concede the correctness of the data put up by MTN in this paragraph.
401 l deny the allegations contained in this paragraph, for the reasons set out in this Again, MTN has not attached the data or provided it to !CASA in any form that
affidavit. would permit of its scrutiny or that otherwise establishes its reliability.
407 More inlportantly, l deny the relevance of the data. AD PARAGRAPHS 128 AND 129
408 The determination of levels of asymmetry is Inherently a policy decision made 402 l deny the allegations contained in these paragraphs.
by each individual regulator to achieve a particular set of goals. Simply
403 I do not admit that the provisions of section 67(B)(c) are applicable but, in any comparing outcomes, as MTN purports to do, is therefore completely
event, I have explained above why !CASA considered that the application of meaningless.
asymmetric rates during the glide path was appropriate and l submit that what I
have set out indicates that the imposition of different glide paths was also AD PARAGRAPH 131
proportionate. I reiterate what I have said above, in answer to the allegations in 409 1 deny the allegations contained in this paragraph.
paragraphs 80 and 105 of the founding affidavit, that the statement in the
explanatory memorandum of which MTN seeks-to make so much was aimed at 410 I reiterate, in the first place, that the very purpose of asymmetry in the 2014
explaining why ICASA had concluded that the base rate for termination on Regulations is to ensure that the smaller operators earn profits from termination
mobile and fixed networks should be the same, not at why provision was made that the large operators do not, in recognition of the fact that the large operators
for asymmetry. have benefitted from decades of rates that were much higher than costs. The
allegations in this paragraph do no more than confirm that this may well
404 In any event, that MTN does not understand the explanatory memorandum is happen. I submit that ICASA is entitled to make use of asymmetry to achieve
~~
this effect, for the reasons I have set out above.
411 I also reiterate that MTN's characterisation of the effect of the regulations as
transferring funds from it to the smaller operators is misconceived. MTN
recovers all termination charges it pays from its cus~omers. The result of the
2014 Regulations will be no more than that it earns smaller profits from
termination than under the 2010 Regulations (but profits nonetheless) while
Cell C and Telkom Mobile will continue to make the same profits as under the
2010 Regulations (because the rate they are entitled to charge will remain
unch'anged).
412 MTN's suggestion that the 2014 Regulations result in it making "excess
termination payments" to Cell C or Telkom Mobile is incomprehensible.
AD PARAGRAPH 132
413 I deny the allegations contained in this paragraph.
414 I have set out above the basis on which ICASA has determined the levels of
asymmetry in respect of the various mobile operators. !CASA's determination
on the levels of asymmetry in relation to fixed line termination is entirely
irrelevant to the review of that decision.
415 In a~y event, I have explained how !CASA dealt with the glide paths for
termination on a fixed network above. I deny that ICASA has acted
inconsistently as alleged by MTN.
AD PARAGRAPH 133
416 I deny the allegations contained in this paragraph.
417 l cannot conceive that MTN does not appreciate that growth in subscriber
numbers is not the same as growth in revenue.
418 MTN's conclusion that Cell C has enjoyed "substantial and profitable growth"
does not follow from the fact that Cell C has increased its subscriber base.
MTN's conclusion is therefore without basis and ought to be disregarded by this
honourable Court.
419 Finally I deny that it is unreasonable of ICASA to make provision for the smaller
operators to earn greater profits from termination than the large operators. The
large operators have benefitted from many years of being in precisely that
position; and they have used the profits generated from termination to
strengthen their competitive position by doing precisely the things they now
wish to prevent the smaller operators from doing - repaying loans and building
distribution networks.
AD PARAGRAPHS 134 AND 135
420 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
AD PARAGRAPH 136
421 I deny the allegations contained in this paragraph, for the reasons set out in this
affidavit.
AD PARAGRAPHS 137 -138
422 I note the contents of these paragraphs.
AD PARAGRAPHS 139 - 140
423 l deny that MTN has established a prima facie right, still less a clear right.
refer to what is stated above in this regard.
AD PARAGRAPH 141
424 l deny that MTN will suffer irreparable harm if interim relief is not granted and if
the review is in due course successful. I refer to what is stated above in this
regard.
AD PARAGRAPHS 142 -148
425 For present purposes, I do not take issue with the arithmetic calculations
performed by MTN. However, I deny that MTN is correct to draw the
conclusions that it does from these calculations and, in particular, to suggest
that these demonstrate that it will suffer irreparable harm if interim relief is not
granted. I refer to what I have stated above regarding irreparable harm.
,§12
AD PARAGRAPH 149
426 I deny that MTN is correct to characterise the 2014 Regulations as resulting in it
paying an "asymmetry subsidy" to Cell C and Telkom Mobile. l have explained
above the reasons for the asymmetrical approach adopted by the 2014
Regulations.
AD PARAGRAPHS 150 - 155
427 I de~y the contents of these paragraphs, particularly the suggestion that in the
absence of interim relief the implementation of the 2014 Regulations will
produce permanent changes to the structure of the market which could never
be undone.
428 I have dealt above with the potential effect on competition that would result
from the implementation of the 2014 Regulations and have explained that
MTN's position is untenable both as a matter of logic and a.s a matter of the
experience under the 2010 Regulations. It appears to rest on the notion that in
the face of action by Cell C and Telkom Mobile to gain market share, MTN
would not be able or willing to respond. This is simply l)nSustainable as I have
explained above. Moreover, these paragraphs and t_he concerns raised by MTN
are plainly entirely speculative.
AD PARAGRAPHS 156 -159
429 I deny the contents of these paragraphs. I have dealt with the balance of
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,§13 §14
convenience above and submit that it plainly favours the refusal, not the grant, which transpired after the MTN application has been launched. !CASA does
of interim relief. It is notable that MTN makes no reference at all to the interests not object to the filing of this affidavit, but submits that it has no relevance
of consumers in relation to the balance of convenience enquiry. beyond recording the events concerned.
AD PARAGRAPHS 160 -162 435 ln this regard, ICASA takes no issue with the facts recorded at paragraphs 7 -
17 of the supplementary affidavit. As emerges from those facts:
430 I deny the contents of these paragraphs. The tenders made by MTN do not 435.1 ICASA initially took the view that, despite its anxiety that the 2014
assist in alleviating the prejudice to, in particular, the millions of consumers Regulations commence operation as soon as possible, it was necessary
affected. I have dealt with this above. in the public interest to defer the commencement date until 1 May 2014
AD PARAGRAPHS 163-165 to allow Part A of this matter to be properly heard and dealt with, with all
relevant parties having had a proper opportunity to prepare papers.
431 ICASA does not dispute that the present application ls urgent. The remaining
allegations are not relevant to this matter. 435.2 Thereafter, ICASA considered that its aim of having this matter be
properly heard and dealt with, with all relevant parties having had a
AD PARAGRAPH 166 proper opportunity to prepare papers, could be achieved if the
commencement date were deferred only to 1 April 2014. This was in
432 ! deny the contents of this paragraph. ICASA's view obviously preferable and in the public interest because
AD PARAGRAPH 167 !CASA wanted the 2014 Regulations to commence operation as soon
as possible, for all of the reasons set out in this affi9avit.
433 1 deny the contents of this paragraph.
436 This is not "curious" or "difficult to comprehend' ;;is MTN now maintains.
437 MTN makes reference to its letters requiring !CASA to provide it with certain
AD SERIATIM RESPONSE TO THE SUPPLEMENTARY AFFIDAVIT OF MTN information regarding the decisions just mentioned.
434 On 28 February 2014, MTN filed a supplementary affidavit dealing with events 437.1 lt was neither necessary nor appropriate for ICASA to respond to MTN's
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§15
interrogatories regarding its conduct at the time. This remains the
position.
437.2 There also was (and still is} no basis for MTN's requests for the
documents it mentions. They are not relevant to this application. The
fact of the matter is that:
437.2.1 The decision by !CASA to postpone the commencement date
of the 2014 Regulations to 1 April 2014 benefitted MTN and
was in keeping with the aim of its application; and
437.2.2 MTN has unsurprisingly not sought to challenge the validity of
that decision, meaning it must be accepted as valid.
437.3 MTN has no basis to draw any inferences from ICASA's conduc~
including those set out in paragraph 18 of the supplementary affidavit.
deny that its attempts to do so are sustainable.
437.4 In particular, I deny that !CASA's "second amendment decision" was
made in order to accommodate the interests of Ce!I C and Telkom. I
deny further that there is any basis for a perception contended for by
MTN that ICASA favoured Ce!I C and Telkorii 8.t the expense of MTN
when it made the 2014 Regulations. ltis Startling that MTN so freely
leaps to this conclusion.
438 Lastly in paragraph 19 of the supplementary affidavit, MTN complains about the
fact that ICASA has not yet filed the Rule 53 record.
438.1 This too is irrelevant for present purposes. MTN has no entitlement to
the Rule 53 record for purposes of Part A of this application.
438.2 !CASA is indeed in engaged in preparing the Ru!e 53 record, which
MTN is entitled to for purposes of Part B of its application, but the
available time of its legal representatives has understandably been fully
occupied by dealing with the need to respond to both the MTN and
Vodacom applications under considerable time pressure.
438.3 The suggestion that !CASA has declined to play open cards with this
'Court is plainly without merit and is denied.
439 I note the contents of paragraphs 20 - 23 of the supplementary affidavit. There
remains no proper basis for the relief sought by MTN.
AD SERIATIM RESPONSE TO THE FOUNDING AFFIDAVIT OF VODACOM
AD PARAGRAPHS 1-15
440 Save to deny that the facts and contentions contained in the affidavit are
correct and that the facts all fall within the deP.onent's knowledge, I note the
contents of these paragraphs.
AD PARAGRAPH 16
441 \ note the conients of this paragraph. !CASA does not oppose the £z
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1~17
consolidation of the MTN and Vodacom applications.
AD PARAGRAPHS 17 -18
442 I note the contents of these paragraphs, but deny that Vodacom has
established any grounds to have interdictory relief granted or any grounds of
review or unlawfulness.
AD PARAGRAPH 19
443 I deny' that there ls any basis for any of these grounds of review.
444 ln relation to paragraph 19.1.3, l emphasise that, as has been noted above, it
was made perfectly clear in the "cost to communicate" document released in
June 2013 that ICASA took the view that there was no reason to suppose that
fts previous market definition or SMP determinations had changed. Jn setting
out the purpose of the regulations, the market definitions, the parts of the
methodology used in determining the market definition, and the SMP
determination lCASA was simply repeating the conclusions that it made in the
2010 Regulations. In no way did.this constitute an att:empt to start the analysis
"afresh", and Vodacom has at all relevant times been aware of this,
AD PARAGRAPHS 20- 25
445 [have explained the process of interconnection above. To the extent that what
is set out with what ! have said, ! do not take issue with the contents of these
paragraphs.
AD PARAGRAPHS 26 - 37
446 The provisions of the EGA, the provisions of the 201 O Regulations, and the
explanatory note to the 2010 Regulations all speak for themselves. Save as
aforesaid, l note the contents of these paragraphs.
AD PARAGRAPHS 38 ~ 45
447 I halle dealt with the process followed by ICASA above. I deny the contents of
these paragraphs insofar as they are inconsistent with what I have said.
AD PARAGRAPH 46
448 The provisions of the draft regulations speak for themselves.
AD PARAGRAPHS 47 - 48
449 I have dealt with the process followed by ICASA above .. I deny the contents of
these paragraphs insofar as they are inconsistent with what I have said.
AD PARAGRAPHS 49 - 53
450 The provisions of the 2014 Regulations speak for themselves.
~19
AD PARAGRAPH 54
451 I admit the chronology of events set out in this paragraph. The provisions of
the Call Termination Amendment Regulations, 2014 speak for themselves.
452 I have explained above the reasons for ICASA's initial decision to postpone the
commencement date of the 2014 Regulations to 1 May 2014 and its
subsequent decision to postpone the commencement date to 1 Apri! 2014
instead.
453 The relITiaining allegations are not relevant to any part of this application.
AD PARAGRAPH 55
454 I deny the contents of this paragraph.
AD PARAGRAPHS 56 - 57
455 These are matters for legal argument.
AD PARAGRAPHS 58 - 60
456 I deny that Vodacom has established any grOUnd of review or any illegality. 1
have dealt with the specific grounds of review elsewhere in this affidavit.
AD PARAGRAPH 60.1
457 J deny the contents of this paragraph. l refer to what I have stated above in
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~20
response to paragraph 74 of MTN's founding affidavit.
AD PARAGRAPH 60.2
458 I deny the contents of this paragraph. I refer to what I have stated above in
response to paragraph 75 of MTN's founding affidavit.
AD PARAGRAPH 60.3
459 I deny the contents of this paragraph. I refer to what I have stated above in
resporl~e to paragraph 76 of MTN's founding affidavit.
AD PARAGRAPH 61
460 The contents hereof are denied for the reasons set out elsewhere in this
affidavit and which will be advanced in argument at the hearing of the matter.
AD PARAGRAeHs 62 - 63
461 l note the contents of these paragraphs. 1 deny that Vodacom has established
any grounds of review.
AD PARAGRAPHS 64.1-64.6
462 The various documents concerned speak for themselves. l have dealt above
with the process leading to the 2014 Regulations and the reasons for the
approach adopted in the 2014 Regulations, I deny the contents of these
·~
paragraphs to the extent that they are inconsistent with what is stated above.
AD PARAGRAPHS 64.7 - 64.9
463 Insofar as Vodacom accurately reproduced portions of the draft 2013
regulations published an 11 October 2013 in these paragraphs, I admit those
allegations.
464 Save as aforesaid, I deny the allegations in these paragraphs.
465 I do' n_ot understand the relevance of the allegations in paragraphs 64.7.3 -
64.9. The draft regulations are not, and could not be, the subject of Vodacom's
review application. Insofar as the allegations are meant to sustain a ground of
review contained in the founding affidavit in relation to the 2014 Regulations, l
have explained above the basis on which ICASA determined the base rate, the
glide paths, levels of asymmetry during the glide paths and which mobile
operators would benefit from those levels of asymmetry for purposes of the
2014 Regulatlons. I deal with the specific grounds of review as they are raised
in the founding affidavit below.
AD PARAGRAPH 64.10
466 I do not dispute that the 2014 Regulations differ from the draft 2013 regulations
published on 11 October 2013 in the respects identified in this paragraph. 1
hav·e explained the basis for the contents of the 2014 Regulations above. To
the extent that the explanation for those differences advanced by Vodacom in
this paragraph differs from what I have set out above, ! deny those allegations.
467 In relation to the allegations in paragraph 64.10.2.2 in particular, while I accept
that paragraph 5.10 of the explanatory memorandum to the 2014 Regulations is
factually incorrect when it records that !CASA used retail revenue market share
in the 2010 Regulations, I deny that this error constitutes a basis on which to
set the 2014 Regulations aside. The error does not have any material impact
on the substance of the regulations.
AD PARAG.l'APH 64.11
468 I have explained the basis for the contents of the 2014 Regulations above. To
the extent that the explanation for those contents advanced by Vodacom in this
paragraph does not differ from what I have set out above, I admit those
allegations.
469 Save as aforesaid, l deny the allegations contained in this paragraph, for the
reasons set out in this affidavit.
470 I deny in particular that the contents of the explanatory memoranda attached to
the draft regulations of 2010 and 2013 are relevant to the review application. I
am advised that the rationality of the 2014 Regul8.tions falls to be assessed with
reference to the content of the regulations itself and the reasons !CASA has
provided to this honourable Court for that content, not by scrutinising other
explanations it has put up in the past in support of different regulations that
were never actually put in place as Vodacom wishes to do. Vodacom appea~
to seek to turn the virtue of ICASA engaging in a fair process during which it
carefully considered the input of all interested stakeholders and in consequence
revised some of its positions into a vice by suggesting that in changing its
position !CASA has somehow acted unlawfully or irrationally. Vodacom's
approach is simply untenable since it would prevent·any public authority from
engaging in precisely the type of consultation processes that section 33 of the
Constitution mandates.
471 1 deny further, and in any event, that the explanatory memorandum attached to
the draft 2013 regulations reveals a ground of review, as seemingly contended
for by Vodacom in paragraphs 64.11.3.15 - 64.11.3.17. I note in this regard
that the explanatory memorandum to the 2014 Regulations does no more than
refer to the contents of that draft as part of a chronological narrative. !t does not
adopt the reasoning in the draft This appears clearly from paragraph 4 of the
explanatory memorandum to the 2014 Regulations.
472 Finally, 1 reiterate that ICASA did not find that each mobile operator offers call
termination in its own market as contended by Vodacom in paragraph
64.11.3.4. The 2014 Regulations could not be clearer on this point.
AD PARAGRAPHS 64.12 AND 64.13
473 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
474 I deny in particular that ICASA determined that there are six different c~
termination markets. Regulation 3 could not be plainer. !CASA identified two
call tennination markets. I do not understand why Vodacom apprehends
otherwise, but its error pervades the founding affidavit and the grounds of
review on which it relies.
475 l deny further the allegation in paragraph 64.12.8 that !CASA may not provide
for asymmetry in the 2014 Regulations beyond 2016 in the manner it has done.
I have explained above that !CASA has provided for all mobile operators
ultimately to charge the same cost-oriented rate for termination (save where
they' remain very small). ICASA has simply provided different glide paths for
large and small operators to reach that rate. l submit that there is nothing in this
that ls "beyond /CASA's powers" as Vodacom contends.
476 l deny finally the allegations in paragraph 6.12.9 and 6.13 that the imposition of
different glide paths is "to remedy perceived insufficient competition in the retail
market' as Vodacom suggests. 1 have explained that in fact different glide paths
are used to ensure that the reduction in rates does not unfairly disadvantage
the small operators and is therefore appropriate.
AD PARAGRAPH 64.14
477 For the reasons set out above and in response to paragraph 74 of MTN's
affidavit, I deny that there was any procedural unfairness in the manner in
which !CASA engaged with Vodacom in relation to the method and data relied
upon for the purpose of the 2014 Regulations.
I~
AD PARAGRAPHS 65- 68
478 The content in these paragraphs are argumentative and do not call for a
response. Legal argument will be addressed regarding the proper interpretation
of the relevant provisions at the hearing of this matter.
AD PARAGRAPHS 69 - 71
479 The reference in the title to the draft 2013 regulations to section 67(4) was a
c!ea~ error that was subsequently addressed in the final 2014 Regulations.
480 The true nature of the "exercise" conducted by !CASA was apparent at all
times. Paragraph 6.1.2 of the notice regarding the implementation of the Cost
to Communicate programme indicated that "in carrying out the review, the
Authority wiff limit its scope to section 67(8) of the EGA" but that it would "not
consider revisions of either the market definitions or SMP determinations as
these will not have changed'. When read in conjunction with section 67(8) of
the EGA, it was quite apparent from these statements that:
480.1 !CASA (in terms of section 67(8)(a)(i) of the EGA) took the view that
there was no reason to suppose that. the market determinations had
changed;
480.2 Section 67(8)(b) of the EGA was not relevant because JCASA took the
view that there was no reason to suppose that the SMP determinations
made in the 2010 Regulations had changed; and
480.3 the review process would therefore be limited to 67(8)(a)(iQ, read with
section 67(8)(c) to the extent applicable.
481 The basis of ICASA's finding that competition remained ineffective was the fact
that mobile operators continued to set termination rates at the levels permitted
by the 2010 Regulations rather than by reference to their actual cost. Given that
ordinary competitive forces would have resulted in these prices being driven
down towards cost, !CASA concluded that competition between mobile
operators in regard to these rates was not effective. No further "methodologyn
was 'required in order to reach this conclusion.
482 I am advised that it is irrelevant that the 2014 Regulations do not themselves
explain the process that !CASA followed in deciding to modify the pro
competitive conditions. The procedure that !CASA followed and the reasons for
adopting the 2014 Regulations are set out above.
AD PARAGRAPH 72
483 I deny the allegations contained in this paragraph, for the reasons set out in this
affidavit.
AD PARAGRAPH 73
484 I note the allegations contained in this paragraph.
AD PARAGRAPHS 74- 78
485 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
486 I reiterate that ICASA did not ftnd that each mobile operator operates in its own
market. I have also explained why !CASA determined which firms would benefit
from asymmetry with reference to market share in the retail market, and how
that share was calculated.
487 I also·' reiterate that I accept that paragraph 5.1 O of the explanatory
memorandum is factually incorrect when it records that ICASA employed this
methodology in the 2010 Regulations. This error does not, however, l submit
have any material impact on the substance of the regulations.
AD PARAGRAPHS 79 AND BO
488 I deny the allegations contained in this paragraphs, for the reasons set out in
this affidavit.
489 1 note that Vodacom does not allege that !CASA's Coriclusions are wrong. It
simply puts up a list of abstract topics and the_n cbntends no more than that
there is "no evidence" that any of them were taken into account. I deny that this
exercise establishes a basis on which to set aside ICASA's conclusions on
market.
AD PARAGRAPHS 81 - 86
490 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
491 ! have explained above that !CASA determined that competition between
mobile operators was ineffective because termination rates were not being
driven towards cost. Vodacom does not contend that this conclusion Is wrong.
indeed, nothing in these paragraphs warrants Vodacom's conclusion that
1CA$A's decision in this respect was arbitrary, unreasonable or unlawful.
AD PARAGRAPHS 87 - 88
492 I deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
493 I have explained above how ICASA determined the base rate. I find It startling
that Vodacom should allege that it has not been proved that lower termination
rates will be in the interests of consumers. Vodacom has publicly stated its
support for lower rates and ! cannot believe that it does _not appreciate that a
lower cost will flow through to lower prices as.a result of competition between
the mobile operators.
AD PARAGRAPHS 89- 92
494 1 deny the allegations contained in these paragraphs, for the reasons set out in
this affidavit.
495 I have explained above how !CASA determined the glide path.
496 While I acknowledge that glide paths may be implemented differently, that fact
does not demonstrate that ICASA's choice of glide path under the 2014
Regulations should be set aside. The explanation given for the glide path in the
2010 regulations is therefore not relevant to the assessment of the rationality of
ICASA's choice of glide path under the 2014 Regulations.
497 Vodacbm's scaremongering in paragraph 91.1 must be considered against the
background of its similar submissions in relation to the draft 2010 regulations,
which did not eventuate in practice. I refer to what is stated above in this
regard.
AD PARAGRAPHS 93-104
498 I deny the allegations contained Jn these paragraphs, for the reasons set out ln
this affidavit.
499 l have explained above the purpose for which. lCASA Imposed asymmetry in
the 2014 Regulations. As set out in the explanatory memorandum, the
asymmetry over the period of the glide path is not_ intended only to reflect
higher costs of termination.
500 I have also explained that ongoing asymmetry is provided for in recognition of
the fact that smaller operators will always have higher costs to terminate than
large operators. I cannot conceive that Vodacom does not accept this fact.
501 I have explained finally why !CASA has not provided for review of the
entitlement to asymmetric rates during the period of. the regulations. !CASA's
reasoning is supported by Vodacom's own allegations in paragraph 91 of the
founding affidavit as to the importance of stability in the !CT sector.
502 I do not understand the allegations in paragraph ~ 01 and am unable to respond
meariingfully to them, save to reiterate that !CASA has not imposed asymmetric
rates to punish Vodacom.
AD PARAGRAPHS 105-111
503 1 deny that comparing the manner in which !CASA has regulated termination on
a fixed network to the manner in which it has dealt with termination on a mobile
network is of any assistance in determining the rationality or arbitrariness of the
latter regulation.
504 Insofar as may be necessary, however, I have set out briefly above-the manner
in which !CASA determined the base rate, glide paths and levels of asymmetry
for the fixed line operators above
505 I deny the allegations in these paragraphs insofar as they are inconsistent with
what I have set out there. Moreover, for the reasons set out there, I deny the
contention in these paragraphs that the manner in which !CASA dealt with
fixed-llne termination rates renders its regulation of mob11e termination rates expire.
liable to be set aside.
511 The allegations contained in this paragraph are based on an absurd and
506 I am unable to respond meaningfully to the bald allegations in paragraph 108, therefore unsustainable reading of regulation 8 of the 2010 Regulations that
save to deny that they are correct or relevant. I do. point out, however, that would result in an improper fettering by !CASA of its_ duty to properly exercise
comparing costs of fixed line operators in the EU and South Africa is its powers and perform its functions. To the extent that MTN and/or Vodacom
problematic, not !east because there are significantly fewer fixed lines in persist in advancing this as a ground of review, it will be addressed in argument
operation in South Africa than in the EU, which, when one takes into account at the hearing of the application.
the geographic area over which those lines are spread, is likely to make
dep!Oy.ment costs in South Africa much higher on a per customer basis than in AD PARAGRAPHS 121 -122
the EU.
512 l deny any suggestion that there is only one appropriate method for setting
AD PARAGRAPHS 112-117 termination rates or that the method that ICASA sought to follow in setting the
rates in the 2014 Regulations was inappropriate, given the informational deficits
507 I deny the allegations contained in these paragraphs, for the reasons set out in that it faced because MTN and Vodacom declined to supply the relevant
this affidavit. information. The remaining allegations are not relevant to any ground of review.
508 I have dealt with their substance above, in answer to the same complaint by 513 In any event, there was nothing preventing Vodacom (and MTN) from providing
MTN, which Vodacom appears merely to have copied. the relevant cost information. In fact !CASA requested them to do so and they
declined.
AD PARAGRAPHS 118 -120
AD PARAGRAPH 123 509 ! admit the first sentence of paragraph 119.
510 l deny that !CASA acted prematurely when it commenced the process of 514 While it is telling that Vodacom contends that it has not submitted any costing
considering regulations to replace the 2010 Regulations when they were due to infom1ation to !CASA that could be used for the purposes of setting the target
rate, the contents hereof are denied.
1~33
515 In fact, Vodacom (and MTN) did supply some information that was relevant and
which was used.
516 I deny that the information requested by !CASA to date from Vodacom was
insufficient to inform cost-orientated rates. As noted above, such sufficient
information was consistently requested, not least in the 2013 questionnaire. As
Vodacom says, it was not provided.
AD PARAGRAPHS 124-126
517 J deny that ICASA was required to consult on the method it used to set the
termination rates. As noted above, both MTN and Vodacom were fully aware of
the information that they had provided. As such they must have understood that
!CASA would follow the same approach that it had in adopting the 2010
Regulations.
518 Jn fact, it is perfectly clear from page 34 of Vodacom's written submissions in
respect of the proposed rates that
518.1 it recognised that ICASA had not developed and utilised-a.cost model
such as the one it had envisaged in the _2010 Regulations; and
518.2 it also accepted that !CASA should " .. impose reasonable interim rates
while {itl proceeds with thorough consultation" on a more detailed
model.
519 In other words, in its submissions on the draft regulations, Vodacom saw no
need for consultation on the model that !CASA did in fact use and which
Vodacom itself had proposed that !CASA should use.
AD PARAGRAPHS 127 and 128
520 I deny that ICASA was required to engage and consult with Vodacom in relation
to the changes between the draft and final regulations regarding the
appropriate measure of market share and the nature and extent of asymmetry:
520,1 Vodacom has never suggested that share of retail revenue from voice
'telephony in South Africa is not an appropriate measure for the
purposes of determining to whom asymmetry should apply.
520.2 The submissions that were made to !CASA regarding the asymmetry
that was proposed in the draft regulations ranged from •••••
••••••••••••. The level and duration of asymmetry
ultimately adopted by !CASA in the final regulation.fell within this range,
both in relation to duration and extent.
AD PARAGRAPH 129
521 I deny the allegations contained in this paragraph, for the reasons set out in this
affidavit
1~35
AD PARAGRAPHS 130 -131
522 l deny the contents of these paragraphs. I deny, in particular that Vodacom has
established a prima facie right and that the implementation of the 2014
Regulations will have "extraordinary and irreversible effectsn.
AD PARAGRAPHS 132 -146
523 I have dealt above with the manner ln which ICASA determined the termination
rate~, including the asymmetry, set out in the 2014 Regulations. 1 do not deal
with that again here.
524 For present purposes, I do not take issue with the arithmetic calculations
pertormed by Vodacom. However, I deny that Vodacom is correct to draw the
conclusions that it does from these calculations and, in particular, to suggest
that these demonstrate that it will suffer irreparable harm if interim relief is not
granted. l refer to what I have stated above regarding irreparable harm.
AD PARAGRAPHS 147 -153
525 I deny the contents of these paragraphs. Tl'}ey are entirely speculative and
take no account of:
525.1 The difficulties that Cell C would have in persuading Vodacom!MTN
customers to move to Cell C; and
525.2 The fact that Vodacom/MTN would undoubtedly respond to any
competitive threats by Cell C. ! have dealt with this above.
526 There is no basis for the suggestion that the implementation of the 2014
Regulations for a single year will !ead to structural alterations to the market,
ongoing losses or an irretrievable loss in market share. Again, 1 have dealt with
this above.
AD PARAGRAPHS 154 -158
527 I deny the contents of these paragraphs. Apart from anything else, it is clear
that th~y rest on the premise that the harm alleged in the earlier paragraphs in
the founding affidavit would eventuate and would be irreparable. For the
reasons set out above, this is not sustainable.
AD PARAGRAPHS 159 -169
528 I deny the contents of these paragraphs. They are again entirely speculative
and no factual or legal basis has been laid for them.
AD PARAGRAPHS 170 - 176
529 l deny the contents of these paragraphs. The V?ry nature of participating in an
industry in which rates might be regulated by ICASA means that Vodacom and
other licensees must be able to adapt their systems when those rates are
altered. I point out, moreover, that as I have set out above the ea!\ termination
rates have changed every year for the last five years. Vodacom does not
1~37
explain how it managed to deal with these changes without the consequences it
now fears.
AD PARAGRAPHS 177 -180
530 I deny the contents of these paragraphs. I have dealt with the balance of
convenience above and submit that it plainly favours the refusal, not the grant,
of interim relief.
531 The tenders made by Vodacom do not assist in alleviating the prejudice to, in
particular, the millions of consumers affected. I have dealt with this above. lt is
striking that Vodacom does not appear to regard the interests of the consumers
concerned as material in this analysis.
AD PARAGRAPH 181
532 The stance advanced by Vodacom here is at odds with the stance advanced by
it in its submissions to ICASA and in its public statements regarding this
litigation. There it expressly or implicitly accepted that the termination rates set
by the 2010 Regulations did need to be reduced further and indicated that it
would not oppose such reductions. I refer to what l have stated above in this
regard.
AD PARAGRAPHS 182 - 188
533 I deny the contents of these paragraphs. 1 have dealt with these issues above.
AD PARAGRAPHS 189 -196
534 ICASA does not dispute that the present application is urgent The remaining
allegations are not relevant to this matter.
535 I, however, deny the speculative allegations contained in paragraph 195 for the
reasons set out above.
AD PARAGRAPH 197
536 l der1y .the allegations contained in this paragraph for the reasons set out in this
affidavit
AD PARAGRAPH 198
537 I note the contents of this paragraph.
AD PARAGRAPH 199
538 I deny that Vodacom is entitled to incorporate parts of the MTN founding
affidavit as it has purported to do in this paragraph. I have, in an_y .event, dealt
with these paragraphs of the MTN founding affidavit abo~e.
AD PARAGRAPH 200
539 ! note the contents of this paragraph.
CONCLUSION
540 Jn all the circumstances, lCASA prays that the application in Part A is dismissed
in its entirety, with MTN and Vodacom to pay !CASA's costs, including the costs
of three counsel.
l hereby certify that the deponent knows and understands the contents of this affidavit and that it is to the best of his knowledge both true and correct. This affidavit was signed and sworn to before me at SANOTON on this the J2t:Qday of MARCH 2014, and that the Regulations contained in Government Notice R.1258 of 21July1972, as amended, have been complied with.
~OATHS Full names: Address: Capacity:
Nadia Giacovazzi 15Alicelane
Sar1\lton _ Commissioner of Oaths Ex Offido
Practising Attorney Republic of South Africa
Independent Coh11nun!catibns Authority of South Africa Pint1iill Farm, 164 Katherine Street, Sanction
Privoite. Bqg X '10002, Sand ton, 2145
RESOLUTION OF THE COUNCIL OF THE
INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
rt iS resolv~d th_at:
2.
3.
!he Call Termi_na:tion Regulations, 2014 (published under GN 6.5 in
Governm~nt GazStte-37295 of 4 February 2014), as amended, are repealed
to the ·extent that they determine wholesale voice can termination rates to a
mobile locatioh ("mobile call termination rates") beyon'd 31 March 201.5.
The necessary legal' process to give effect to the resolution in 1 above
(includin9 the pu!Dlication of regulations to achieve that object) sh<;1/1 be
initic:ited ·rmrn.ed iateJy,
The Autlicirity shall 1·mmediately conirnence a regulatory process in terms of
section 67(8) of the Electr.onic Communications Act 36 of 2005-to consider
the imposition of appropriate cost-oriented _mobile call termination rates for
the period commencing 1 Apri! 2015.
:641 Page2
The Authority sha!J endeavour to complete the regulatory proc;e~s referred to
in 3 above, within a period of six months from 1 .APTII 2014 and wUI, in a_ny
event, complete that_process by 31 March 2015.
DR SS Mncube
Chairperson
Jo·seph Lebooa
Coonc_lllor
Rubben Molilaloga
Councllror
William Stucke Councillor
Katharina Pillay CouncJllOr
Wiltlam Currle
Couricillor
Marcia Socikwa
Councillor
) Councl1Jor
SIGNED AT JOHANNESBURG ON THIS THE lL_ DAY OF MARCH 2014
NB&42 BG Sowman Gilfillan
165 We•t Stre~t, Sandton, lohannfsburg PQ Bo)( 7B5B12, Sandton, 2146, South Africa
Te_l 1"27 1 t 669 9000 ! Fax +27 11 569 9001 D<lcex 6 Johannesburg
Email [email protected]..<a www.bowmon.co.Ul
Our Reference; Livia Dyer/Lyndal Your Reference: Anderson/ 6126613
Direct Line: (011) 669 9536 Date: E-mail Address: [email protected]/[email protected]
BYE-MAIL
TO:
Dear Sirs
Stuart McCaffer!:y [email protected] (Attorneys for Mobile Telephone Networks (Pty) Ltd)
Pieter Conradie [email protected] (Attorneys for Vodacom (Pty) Ltd)
Heather Irvine Heather.irvine@uortonrosefulbrightcom (Attorneys for Cell C (Pty) Ltd)
Grant Herholdt gherholdt@ensafrica com (Attorneys for Telkom SA SOC Ltd)
Stum McCafferty /2420953 Pieter Conradie/67012014 6W_._;uch2014
"WITH PREJUDICE"
MOBrLE TELEPHONE NETWORKS (PTY) LTD /THE CHAIRPERSON OF THE INDEPENDENT CO:M'.M.UNICATIONS AUTHORITY OF SOUTH AFRICA / THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA AND 29 OTHERS CASE NO. 04699/2014
VODACOM (PTY) LTD / THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA/ THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA AND 36 OTHERS CASE NO. 6701/2014
"liowm•n t;,ii(1ion lno. R•g. ~. l9!!1oi14<>!1>1 ~rt<!,.,,..,.. Not~•' Co"voy.noo"
Olre<!Ors ML .. • ICholrmm) I M """"'°'' I op ~nd"'10n I M M""'"ll11'oo I J ••nooOO~ I AMO•m<~W<bb 11'> B<lr, r ML~""'""° I 'l!hzm I \M lotO.. CM J.>..,.,..- I ll Mn< I lk'W••r""'" I !M c..rr 1 PM C•rt<r I LH'hot..-1 M CM"' I Al tol~'""' I A Collin> I CN c,.,,"'fh>m I GM Oon1'<ot I M °""Y l Ma: 0.,1<!1 "'' ~1 .. , I IV DOl<Mll 1 K DI~ I c• tl<r'I'-" I HO P<Jrl<yl ·~.;. ~°""' l!JyUI I( !>"Jhui><rt I ! E""""""' 'K fml I L R<I"' I IR fo,,, .. , M!ui\on I )J Gorv<O 'Q<. ~ .. 0.1 Oj i;«-.11 lHM G.!<ti<I 0 G"""' IM r.o.0 .. 111 "°'""''"GJ"'' ~ °"''' OI ~"'"I>"""""""' I ~H•l<I ASH""' I r H•"·'"''"' fA Hie.cl• :rilhoo ll\~OOl'l I AJK"'p I G"'k<>l 1 CPl(cno"'v I KMl<.<rn lflKh= llJ"°""'1'l IG «u1<r i)>Kr.J<rl •Lo""'&"<"' I fOl>h" I f«l.o~er11\•ul"<h<rl OMotffr PMM•'""' I K> "'"""""'I MM•l<ol• I J\MdoTincr I V'M<'J''"" I"'"'"'"", JYMol.c I PHModr I Y.(;Mod"'-1-INIMo""' I "'M1'oooo Ill"""°"'"
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BG Bowm~OGilfillan (h Al'">CAOM\JP ~y
ALe>CMundiMem~
1.
1.1
643 BG Bowman Gilfillan
Our clients have instructed us to make the following v;ith prejudice settlement proposal to your clients -
That regulations 3(a), 4, 5, 6, 7(1), 7(2), 7(3)(a), 7(4)(a)(i), .7(4)(b), 8 and 9 of, and p1uagraphs 1 and 2 of Appendix A to, the Call Termination Regulations, 2014 (as amended) as published under GN65 in Govei-nnient Gazette 37295 of 4 February 2014 (the 2014 Regulations) shall be of force and effect only for the period 1 April 2014 to 30 Septen1ber 2014,
1.2 For the sake of cla1ity, for this six month period -
1.2.1 the rate for wholesale voice call termination to a mobile location (mobile call termination) <let.ailed in table 1 in the 2014 Regulations for the period from 1 April 2014 to 31 March 2015 under regulation 7(4) will be the applicable mobile call termination rate (i.e. 20 cents); and
1.2.2 the current maximum asymmetry rate for mobile call termination detailed in table Al of paragraph 2 of Appendix A to the 2014 Regulations for the period from 1April2014 to 31March2015 will be the applicable mobile call ten:oination rate (Le. 44 cents) in relation to licensees not listed in regulation 7(3)(a) to the 2014 Regulations.
1.3 That the Independent Communications Authority of South Africa (ICASA), will immediately commeru:e with a new regulatory process in tenns of section 67 of the E1ectro-qic Co:r;nm"Ql\ications Act 36 of ioos t9 set ~w cost-orien~d mobile call terntination rates to take effect from 1October2014, to the extent that this is appropriate at the conclusion of the regulatory process, and to make regulations to replace the 2014 Regulations.
1.4 That your clients undertake to provide ICASA with the necessary cost :information to enable I CASA to conduct the regulatory process referred to in 1.3 above,
1.5 That each party is to pay its own legal costs.
1.6 The terms set out in paragraphs 1.1 to 1.5 above are to be made an order of court by agreement.
2. The offer above is open for acceptance until 09h00 on Monday, 10_March 2014 and is extended to the following parties;
2.1 Mobile Telephone Networks (Pty) Ltd;
-2·
2.2 2.3 2.4
Vodacom (Pty) Ltd; Cell C (Pty) Ltd; and Telkom SA SOC Ltd.
644 BG Bowman Gilfillan
but will only become binding should all of the aforesaid parties accept by the aforementioned deadline.
-3·
Piet Olivier
From: Sent; To: Subject:
Importance:
Dear Sirs
Kalene de Vos [[email protected]] 10 March 2014 12:50 Lynda! Anderson; Livia Dyer RE: MTN/ !CASA and Others (Case no. 4699/2014) and Vodacom / ICASA and Others (Case no. 6701/2014)
High
We refer to your e-mail below together with its attached "with prejudice" letter.
For completeness, we are instructed to inform you that the proposal made by your client in the letter ls not acceptable to our client.
Yours faithfully
~.~uart McCafferty
WEBBER WENTZEL
T: +27 11 530 5031 F: +27 11 530 6031 M: +27 83 277 7430 E: [email protected] www.webberwentzel.com
This email is conftderitlal and may also be legally prlvileged. lfyou are no\ the intended rnclpien~ please r<Jtify \he sender Immediately and then delete It. Please do not C:OpY, disclose Its contents or use It for any rnirpose, Webber Wentzel will not be ~able for any unauthorised use of, or re~anoe on, \his email or any attachment. This email is subject \o and Incorporates our standard terms of en9agement. Please contact tne sender!fyou have nol already r<r..elved a copy \hereof
From: Lyndal Anderson [mailto:[email protected] Sent: 06 March 201415:41 To: Stuart McCafferty; Pieter Conradie; Irvine, Heather; [email protected] Cc: Ka!ene de Vos; GranvHle, Lara; [email protected]; Livia Dyer .Jubject: MTN/ ICASA and Others (Case no. 4699/2014) and Vodacom / ICASA and Others (Case no. 6701/2014)
Dear Sirs
Please find attached a "with prejudice" letter marked for your attention.
Kind regards
Lynda! Anderson Senior Associate
BG Sowmon Gilfillan
165 West Street, Sandton, Johannesburg P O Box 785812, Sandton, 2146 South Africa
t+2711669SOOOI d+2711669 9536 t +2111.669 eoo1 Im +2112 479 9672 e [email protected] za WWW bowman.co.za
t)L:\LIFFE DEKKER HOFMEYR
Bowman Gilfillan Attorneys
EMAIL: [email protected] [email protected]
Dear Madam
YourRororonce
Ohr.IUoo
Oiloc11•1"1!0C
D•lo
NBl46 1 ?ro\ea Place Sandown 21sa PMvate Jl.ag X40 BMm()re 2010 soulhAfrlca 01< 42 JohMnasburg
T +27 {0]11 562 1000 f+27[0)11 SB21111 E [email protected] w www.cflffedeklo:lrholmeyr.Com
Also al Ca;ia Town
P ConradiefA Hofmeyr
01957591 !6735934v1
L Dyer/L Anderson/6126613
{011) 5621071
{011) 562 1671
10 March 2014
MOBILE TELEPHONE NETWOB.KS (PTY) LTD I THE CHAlRPERSON OF THE INDEPENDENT AUTHORITY OF SOUTH AFRICA & 30 OTHERS - CASE NO 04699/2014
VODACOM (PTY) LTD I THE CHAIRPERSON OF THE INDEPENDENT AUTHORITY OF SOUTH AFRICA & 38 OJHERS ·CASE NO 670112014 .
2
Your With prejudice' letter dated 6 March 2014 refers.
We have taken Instructions from our client ln respect of the settlement proposal contained fn your aforesaid letter and as advised previously, your clients' proposal ls not acceptable to our client.
Yours faithfully k /
P J CON RADIE f A J HOFMEYR
CLIFFE DEKKER HOFMEYR INC
Co Mr S Mc Cafferty (Webber Wentzel) - attorneys for Mobile Telephone Networks (Pty) Ltd Stuart. [email protected] corn
Ms H Irvine (Norton Rose Fulbright) - attorneys for Cell C (Pty) Ltd [email protected]
Mr G Herholdt (Edward Nathan Sannenbergs) - attorneys forTe\kom SA SOC Ltd [email protected] ·
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DIRECTORS": CAPE TOW!'! RD B..,..rtd>e TJa,_. CM Brllllir>R°""°'" MA!llOmloy MR Colin!· /\do~ lF Egypl GTFCld Sfl'il\~• OF Fy!"or Siii' Glo .fWGr&m ,o.JHenrlle AM Holb<rJi PB Hou<l\lng Cl li'r\01"'! RC He>m JH Jocob• l\Jago A Katlom l'J l\Ni<ho IJle .. 1~ GCl!Jmb R<'.MorcuoA Mwlmo.n NWMLlllor J ~oe< fT N""""'m G om .. l Rh<lo:!I• 1>1 Rubinstein GJ StanofJold BPAS""'-' .. DM Thomp•on r;wWllll•m• T J WNt>nl<ly
. £)(ECUT!VE CONSUL TAITTS: HS Co,,,,oo, MB .laol<aon
CONSUL TAITTS: \.le Dai<J'l l'i"J l<Jngdon FF Ko'.l>o DJ W'i!ll'tl
SENIOR ASSOCIATES' JAAa<omo G B•<l:liuiz1n-lla<boH lk\!>ahal B 9rown LSrur\lon KCoddy KM Cm<o111 !<Chong J Do Con~ J 0.'11rr,i Ef tl<lmp1lor JdoVoo l En;.oih<eohl T E""""'" 1V Er ... m"" Ul=loy S \mmolmon T Jotd .. n KJ Koonl," K Koylool< Y Kleilman JA Krl~ H l.oiog AG lowi• CJ Lo'O!• HJ LI>.m ilJ Majol~ G M .. lno NMol"nl<N flWM•n""n S!M"!'Or TMoodloy CPMull« DGMullor DJNnldoo LNoidU CMO'CoM"' LPillri KSPloto SPollo•trirrl Nl\Prllolon JRRlpliO'/-EVSi'l'I a.IS<iAz> AE Soobor M Slb•n<lo P Slogh-Ohuiom tV Ston.rlekt T SUi"""" AL Taylor FJ T8!llloricho Rl Th"""°n F V•llo-Got\<>O M von ;o;,,.,.,ol lO Wlir;o~ Nt ZW!ln• \
1 \\
CLIFFE DS<KER HOFMEYR SERVlC~S PROPRIETARY LIMITED DIRECTORS: ES Burv•r Z Dmor r-1.J von dorW.n R von Eod"" MF Whllo~or B W!i~•m• ~ 'Br~lol> 'Uulch 'ZlmboOwoan •czpo T...,., M0Mgln9 ppM&r
c~ri. O.<l<Or Hol""l" ~ • momllo•<>l DLA p;p "'°""' •nol\"'10<oflooo!o,.d!«•
10 March 2014
By Email: [email protected]
Livia Dyer Bowman Gillillan Inc.
Dear Livi~
NB :fi~7
A NORTON ROSE FULBRIGHT Norton Rose Fulbright South Africa 15 Allee Lane Sandton 2196 South Africa
Tel +27 11 685 8500 Fa~ +27 11 301 3200
Direc1 fax +2711 301 3261 PO Box 7B4S03 Sandton 2146 Docex 215 Johannesburg nortonrosefulbrlghtcorn
Direct llne +2711 6B5 81329
Email heather.lrvine@no rtonrosefulbrlgt'.t.corn
Your reference L Dyer/6126613
Our reference 018304/Ms H lrvinellg
Review o1 Call Termination Regulations, 2014: Your Client's ''With Prejlidlce" Proposal
Our client has received and considered your client's "with prejudice" proposal, sent under cover of your letter of Thursday 6 March 2014.
2 Our client hereb)r accepts your client's aforementioned "with prejudice" proposal and notes your client's Intention to review and determine "cost-oriented" mobile termination rates as currently set out In Table 1 ot the 2014 Regulations ln regulation 7 durlng the 6 month period referred to in your client's proposal, to the extent that this is appropriate.
Yours sincerely
Heather Irvine/ Lara Granville Norton Rose Fulbright South Africa
..,,,.,.,_,
~~~J:t~~w~~~:::~iEg~;~~I~~§~~~1§~::~s~~~;;~1f~:E~~~~~;~ =:;-o..:.."::::'.~;:"'..:.':"~o;:;.:=~.':r;,,t:,:,:;.::,::.:•.:.::..~"':.o;.;~~~.::.~'!;!:::~~;t"-..:,::;:,:r;;:;-;;:~~~~-:='~'6.:'..".""'""""-""''~"'·· .......... _
10 March 2014
CC: Pieter Oonradie I Anja Hofmeyr
Stuart McGatlerty
Grant Herholdt
648
NoRTON ROSE FULBRIGHT
2
d;!Ocil)f$
·~""·· '"' """""~""!•
To: Bowman Gllfi\lan L Dyer Via email: [email protected]:a
cc:
Cliffe Dekker Hofmeyr PJ Conradie I AJ Hofmeyr Via email: Aniahofmeyr@dlacdh corn
Webber WentZ81 Stuart McGafferty Via email: [email protected]
Norton Rose Fulbright Heather lrvtne V!a email: [email protected]
Dear Sir f Madam,
E.NS I afrlca's largest Jaw firm lohannesbutg cape town durban stallenbosch
150W.asl•lreat·
S11ndown !Hlndl<ln !ohannasbu[ll 2196
po boX 763347 sand\on south af~ca21~6
docext521andb\Jro
tel +2711 26'i1760o tax +2711 2697~gs
[email protected]<>.za ens.co.za
G Herholdt/0357322 j our r
As below yow,~1
10 March 2014
MOBJL.E TELEPHONE NETWORK.S (PTY) LTD ("MTN") l THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA AND OTHERS- CASE NUMBER: 04699 l 2014 ("MTN AppUcatlon")
AND
VODACOM {PTY) LTD ("VODACOM"}l THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA AND OTHERS- CASE NUMBER: 6701/2014 ("Vodacom Application")
MM. K>t:i(cll•l"""n) P.C. f•lle< (<111•1 """""Uv<I M. M\1'1dtwa (d•Potv clllol ••00>U>e) !<.Abor<!or A.1'4luf:at !U Aleod< A.c_111 .... n<1or D.a.1111oway' S.M\llooy C.J A!x;nO<>n G.C.. Badonl\Orl\' J. !lolkln O.eftrid F.M. 8»•n' C. llocl:or' A.F. S~dllgo A. El<!nMl! LJ. B~ Z.11_ BO«len L eflgnaul' R. lloda A. B'"'hoff J. llr<>db<>d\• T auctilor C.).l Bui A. cam•y' 11.H.Cairnlcll•el v.o. Chapnn p, Ch•ltv L Ctwbtio C.L, Cole• P.G.IL Colyn B.J. Croo~e· P.H. Cn>•ln' P.J. Dodt> c. Don>el• M.S. o..so1 T.M. D••m""d R.delaHorpo G.f_ aoSmil P. O.•c-oi?lllM ld.D.F.D.S. Domlogo• II, duPl••sl•' t d\IPI•"" J_C.du Pro•< Z. E1>ra1ilm E.Elffo A.Ernomu•' H fo~31ld AC.Fe11&1eltt1 M.J.F•lristoln' G.$.ftlth~n •Pfonyano J.S.f"""'- J.S.Fenoz.Cord<t•o ,0.F.M.Femtl"8 J.11.FI.,, Rl.forster M.R. F~odFl"n R.M. G•<I /1U, Gordon C. Golb<ol R. GO<><!m&n P.F.L. Gecom<111t M.W.Grat1it1go G.LG"""'' I[)_ Gw>lunza S.E.M.tlonl! SW. H•oi""' S. H&l\loy J.T.~ Ho)'(locll l.K Hoy., SS, Ha)"" L Holmon J.0. Horb<ot G,R. t\or!loldl H.M. tt01holdl E_ Hoy.le!< A.C. H<>Ol>On Prot!l,B. Hu!d>">on' A.V. lomal! ProlA.J. IWlo»\ilz' D. Jo~o C.V.John•O<T E.AJoMwn J.C Jon•• II, Ka""'ro:I' S.Kaosen J.Kalz LC. Kati G,f.J,KoTiomton• R.H. Kolly L. ~ E.J.P. l•i King' t-1 Lalla D.M. lombori J.M. Longford l.B.W. Uiwr&n~ E.S. lo Gr>logo S.C. U<lorln"n A. l..., PAK.lo ftou;<T W,p, lo~ S.B, l1>'1olon' SA l""i< I-I, lop>& J.D. loob...,- L. LO!M' SA. M-aci<ay.Oavidoon 0. Mocl:t~bo~' V,Ma9ubane l(_W. Millohlibolo G.F.Malan I(. Marl•IMn [).H. M3<Mr M.W. Mallou SL Mbotha YA MOI1do1oohn A.T.IMy•tov 0,B 1'1o>-'•r«hm1d\ A llOnn>ar M.D. Molopo Cl_ Morg•n J.C. Mo:~ M-G. Mo"1>0I! MAC, Murphy }!. MW•yChln~lil N.A. Naplor J.S. lloudo' J.S. N•lwr,. 11.H. Nolan AJ.L. Nort"'1 Cl M. t11,;a G_ Nyaiany\' G.J. llo~ol J.T.llo•ltiul<en S.P. O•borne T P•pon!kolO<>U T.0. Papcoo M. Porl<or' 0.G.PollO!S«t N. Pi10,y C.\L Pilman JAP=><in' J.P. Pr'<tloriu• G.W.R•ld P. R•)'bum A.II, Rioha<d .. A. Rochor P. Roqor• A.G. Rubin R.~. RuDolph J.Rusd\ MLSerGmt>o<l:1 G.C Sr;oll RAS<ol! H.S.Son•X•I B.J.Sor<>hro l.S~drach K.LSlmp•On S.S~h N.Srrnl H.M.St1i<:k&r$ S.J.Sp•m•1 R.C Sloln M.T,Sioyn V. Sllf.vell A.W. Sym;nglon S.P.f.1- Tnotl\'Onol' L 11b.<)lraol1)' M.S. Tuder J.M. Voll\in W.S.Svan<kl<Col/I V.L vanCopp•nhauon l.M.v"'1~M• C.VMLOllgoronborg A-'IMNi•i<ll<l< G.M.•""lllolt«I: RYllnR"11$b\lrll l.W~ .lVMoto G.Voqolmar>' S.R...,,,S<hlmt!IOll LVorolcr O.A.Waob s. W•ideman H. W••.,I• PA W11.r C.L Wu~•ohrl M. Yudox.,. J.M- Zioll
1.
2.
650
We refer to the iibove two matters and·to the "With Prejudice" settlement proposal receiVed from the
Independent Communications Authority of South Africa ("ICASA") on 6 March 2014.
We have been !nstructed to accept the aforementioned !CASA proposal on behalf of our client.
Yours faithfully
Reproduc~d by Sabin~/ 011//114 i11 le~m~ ofGovm'"""'tI'dnter'& Copyriglir AJtthorizy No. 10505 dtlled 02 Fdruary 1998
STAATSKOERANT, 9 APRIL 2010 No. 33101 3
GOVERNMENT NOTICE
INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
No. R. 282 9 Aprll 20"'10
INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
REGULATIONS IN TERMS OF SECTIONS 4 AND 38 OF THE ELECTRONIC
COMMUNICATIONS ACT OF 2005 (Act No 36 of 2005) READ WITH SECTION
4 (3) Q) OF THE \CASA ACT OF 2000 (Act No 13 of 2000) WITH RESPECT TO
INTERCONNECTION REGULATIONS
\, Paris Mashile, Chairperson of the Independent Communications Authority of"'
South Africa ("ICASA") hereby confirms that the above regulations were
approved b the Independent Communications Authority of South Africa under
ith section 38 of the Electronic Communications Act, 2005 {Act
and s tion 4 {3) (J) of the !CASA Ac~ 2000 {Act No .. 13 of 2000/ ..
,.
652
4 No,33101 GOVERNMENT GAZETTE, 9 APRIL 2010
Schedule
INTERCONNECTION REGULATIONS
PART\
Preliminaries
1. Definitions
(1} 1n these regu\alions, any word or expression to which a meaning is assigned in the Act or the !CASA Act shall have the same meaning and unless the context Indicates otherwise -
"A~t" means the Electronic Communications Act, 2005 (Act 36 of 2005);
"!CASA Act" means the [ndependent Ccmmunicaflons Authority Act, 2.000 (P.cl 13 of 2000);
"Interconnection providern means any person who is requested to provide interconnection in terms of section 37(1) of the Act:
"Interconnection seeker" means any person \ic;ensed in lerms of the Act and persons prOVid\ng services pursuant to a \icenc;e exemption that ls requesting interconnection, including an applicant for an individual licence.
2. Purpose of regulations
The purpose of these regulations is to;
(a) facilitate the conclusion of interconnection agreements by stipulating:
(i) agreement principles;
(ii) timeframes and proz:ess to be followe~-by parties; and
(ii!) the procedures for the submission, review 8nd filing of agreements;
{b) provide for and require the provision of lntercormection services to enable llcensees to interconnect With each other; and
(c) encourage interoperability.
653 Reproduc.e// by Sa.bi net Online in terms ofGcwen1111entPri1t!•r's 6Jpyrlghl Authority No. JOSOS Qai•d 02February1998
STAATSKOERANT, 9 APRIL 201 0 t'lo. 33101 s
PARTI!
fnterGonnection
3, Requests for interconnection
(1) A request for interconnection must be in writing and must. amongst others, include:
(a) the date of the request;
(b) the interconnection seeker's technical requirements, based on the technical ?tandards of the interconnection provider: and
(c) the type of the Interconnection that is required.
(2) An interconnection provider must respond to a request for interconnection within seven (7) days of receipt of the request stating its minimum requirements for entering into the interconnectfon agreement.
(3) The parties must finalise an interconnection agreement within forty five (45} days from the date of request provided that the parties may agree on a longer pefiod, which longer period must not exceed sixty (60) days,
4. Financtal feaslbi!ity
(1) For purposes of section 37(3) of the Act, a request is flnancialty feasible where there are no material adverse financial consequences.
(2) Any dispute on financial feasibllity wl!I be determined on a case by case basis by the Authority.
5. Technical feasibility
(1) For the purposes of section 37(3) of the Act, a reC1Uest is technically feasible where it meets the following minimu.m requirements:
(a) the service requested meets the technica! parameters for interconnection on the requesting party's network al the time that the request is made; and
(b) allows for interconnection to the interconnection seeker on terms that will not nave a materially negative effect 61'1 rhe Interconnection provraer.
654 Reprodu~~d by Sabinet Online in terms o[Govemnwit P1t11l•r's Copyright Authority Ne. 10505 dated 02 February 1998
6 No. 33101 GOVERNMENT GAZETTE, 9 APRIL 2010
(2) Any dispute on technical feasibility will be determined on a case by case basis by the Autho.rity.
S. Maintenance of any to any connectivity
(1) The terms and conditions of each interconnection agreement must:
(a) aim at facilitating interoperability and promote interconnectton in a manner which promotes any to any connectivity so that an end~user of an interconnection seeker is able to communicate electronically with an end~user of another interconnection provider and vice versa; and
(b) not preclude an interconnection provider or seeker from entering into different types of interconnection agreements with different lnterconnectlon seekers or providers.
PARTl!!
Princip\e-s for interconnection agreements
7. Quality of service and standards
(1) The parties to an interconnection agreement must ensure that their agreement:
(a) contains the technical standards of both parties; and
(b) complied with all relevant international standards and recommendation of the lnternational Telecommunications Union as agreed to by the Republic of South Africa and any other standard as prescribed by the Authority.
8. Service level parameters
An interconnection agreement must contifn service levels af1d provide reasonable remedies and penalties for any failure to meet such service levels,
655 Reproduced by Suhfoet Onli1t• f,, terolls ofGovu11mmt PP"i11fer's C~pyrig1'1 Aut/,orily No. I OS OS dated 02February1998
STAATSKOEAANT, 9 APRIL2010 No. 33101 7
9. Confidentlalfty
Subject to the provisions of section 40 of the ICASA Act read with section 39 of the Act, an interconnection agreement may not contain a provislon that prevents the public disclosure of the agreement by the Authority or by either of the parties.
10. Non discrimination
(1} The parties to an interconnection agreement must not 'unfairly discriminate in the negotiation, conclusion and Implementation of such agreement, unless otherwise requested by the interconnecting party.
(2) Requests from an interconnection seeker, including requests for additional interconnection in terms of an already concluded Interconnection agreement, must be dealt with in the order \n which they are received; and
(3) An interconnection provlder must apply similar terms and conditions, including those relating to rates and charges, ln similar circumstances to ltself; affiliates and other Interconnection seekers, providing simflar servie:es. unless otherwise requested y the interconnecting party.
11. Transparency
(1) B!lling and settlement procedures must be transparent.
(2) Where the_ provision of one service or facility !s dependent in practice on the · provision of another service or facility, such a relationship must be clearly
identffied.
(3) Charges for interconnection must be sufficiently unbundled so filat an interconnection seeker does not have to pay for anything it does not require for tne requested interconnection. ·
12. Interconnection Information
(1) A party to an interconnection agreemerit may publish on its website and must provide the other party, on request and within ten (10) days, information that is in the party's possession or control relatlng to:
a) A list of interconnection products or services offered by the interconnection provider:
656 RepmOuped by Sabbret Online ii> terms ofGovernn1enr i'dl!lu's Copyrig/Jt Au/Jtority No. 10505 dated 02Fehnutry1998
e No. 33101 GOVERNMENT GAZETI'E, 9 APRIL 201 O
b) Process and commercial information that may assist the interconnection seeker to formulate a request for Interconnection, including but not limited to:
(i) any material changes to interconnection arrangements that may affect the interconnection arrangements;
(ii)· plans of an interconnection seeker or services and/or products offered by the interconnection provider.
(2) A party to an interconnection agreement may publish on its website and must provide the other party, on request and within ten (10) days, technical information that is in a party's possession or control that will assist the intei-connection parties to plan, establish or maintain its electronic communications network or service includes, but is not limited to:
(a) the technical specifications of the electronic communications network or service;
(b) switching, routing and transmission equipment used in the network or service;
(c) signaling protocols used;
(d) traffic volumes; and
(e) any material changes to interconnection arrangements that may affect the 1'nterconnection arrangements or plans of a11 interconnection seeker or the Interconnection seivices such party provides or intends to prov1de.
13. Point of interconnection
(1) An interconnection agreement must provide for a ·location that constitutes a point of demarcation between the interconnection provider and the interconnection seeker. These locations niay Include but are not be limfted to:
(a) mobile switching centres; (b) media gateways; (c) local exchanges; (d) tandem exchanges; and {e) digital switching centres.
657 Reprodufed by Sabi1,,,1 On.!iru in ten11s ofGo•ernmint l'rln.Ur'; Copyrigllt Autltorily No. 10505 ifate.d 02 Febmflry 1998
STAATSKOERANT, 9 APRIL 201 D No. 33101
(n Internet exchange points
(2) The interconnection provider must offer interconnection services at any financially and technically feasible point upon request by an interconnection seeker.
(3) The interconnecting parties must agree on operations and maintenance expenses of the facib'ties necessary to reach the point or points of interconnection.
(4) Where the interconnection provider has lnformed the interconnection seeker that the requested point of interconnection has insufficient capacity, it must provide to the interconnection seeker details of the nearest point of interconnection.
(5) :'The interconnection seeker must be afforded an opportunity to make representation to the interconnection provider regarding tne nearest suitable point of interconnection.
14. Exemption
Licensees who are found not to have significant market power ln terms of section 67 of the Act shall not be required to comply With regulations 10(3) and11 (3),
PART IV
Framework, model terms and conditions of agreements
15. Terms and condttions of interconnection agreements
The interconnection agreement must, except Were a matter is not relevant to the interconnection service !n question, address the following~
(a) definition of terms and abbreviations:
(b) technical scope of the interconnection which includes;
(i) a description of the purpose of the interconnection;
(ii) a description of the connection services sought;
(iii) a description of the technical scope and specifications of the interconnection;
658 Repr1>ducod by Sa1Ji1tet 011li1<e fo ~rm;; o[Go••rnmell! Prfottr's Copyrfg/rf Autl!adty No. I05fJ5 dald 02Febmary1998
10 No.33101 COVE.RNMENT GAZETTE, 9 APRlL2010
(iv) mechanisms for changes to the purpose, scope and specifications for interconnection;
(v) details regarding access to numbers by the parties; and
(vi) data interchange format;
(c) point of interconnection, which includes:
(i) location of point of interconnection and related facmties' specifici.tions:
(ii) mechanisms for changes to the location of polnt of interconnection or related facflities;
(iii) signallng interconnection description; and
(lv) charges for each point of interconnection.
(d) billing and settlement which includes:
(I) billing procedures;
(ii) payment terms and conditions; and
(iii) billing and settlement disputes procedures.
(e) charges, setting out:
(i) detailed charges per service provided; and
(i~ mechanisms for review of charges.
(f) quality of service and service levels, covering:
(i} service levels and quality of service obligations;
(ii) penalties;
(iit) testfng and maintenance;
(iv) fault reporting;
(v) service tevel disputes; and
(vi) system protection and safety measures.
659 Repradui;etl by Sabinet On1ilie ln terms ofGonm1.menl Priftler's CopyrightAutAorlty No.10505 dal.ed IJ2Februury 1998
STAATSKOERANT, 9 APRlL 2010 No. 33101 11
(g) termination of agreement covering:
{I) grounds for termination; and
0l) termination procedures;
(h) contractual dispute resolution and arbitration procedures.
PARTY
16. Dispute resolution
(1) Where:
(a) the reasonableness of any request is disputed, the party requesting interconnection may notify the Authority in accordance with regulation 16 of these regulations;
(b) an interconnection provider has not responded to the request for Interconnection within the time set out in regulation 3(2) of these regulations, the !nterconnecl\on seeker may notify the dispute to the Authority;
(c) parties have not reached agreement on the terms and conditions oi an interconnection agreement within the time prescribed in regulation 3(3) of these regulations
1 any party may notify a dispute to the
Authority;
(2) A dispute notified to the Authority in terms of regulation 16(1) of these regulations, must be in writing and must set out the details of the alleged dispute;
(3) The party lodging the dispute must provide the Authority with sufficient information to allow it to make its decision.
(4) Where the Authority, after considering al\ relevant i~formation, determines that the dispute warrants further investigation then the Authority shall:
(a} provide the other party to the dispute with a copy of'the complaint setting out the nature of the alleged unreasonableness or details of the unwiltif\gness to negotiate or agree within fourteen (14) days of the notification of the dispute;
660 Rcproduc_ed by SllhiJ1et 011b'r1e 1)1 tom· ofGovemnr~"t Priii/a ~ Copyri'g/11 Auihority No. 10505 dated 01Feb1;.ar;)'1998
12 No. 33101 GOVERNMENT GAZETTE. 9 APRIL 2010
(b) afford the other party to the dispute with a reasonable opportunity to respond to the allegations in writing within fourteen (14) days of receipt of the copies of the complaint referred to in regulation 16(4)(a) of these regulations; and
(c) afford the party which notified the dispute a reasonable opportunity to reply to the response in wriiing within fourteen (14) days of receipt thereof.
(5) The Authority rnay call far oral representations after the submissions rriade by the parties referred to in regulation16 (4) of these regulationt;
(6) Notwithstanding the provisions of regulation 16(5) of these regulations, the Authority may determine the matter on the basis of the papers submitted to it by the parties.
(7) The Authority wi\'i within fourteen (14) days as provided for in regulation 4(b), or 4(c) of these regulations or such longer period as is reasonably necessary, furnish the parties to the dispute with its final decision; and
(8) Regulation 16 of these regulations does not, in any manner, limit the power of the Authority to refer a matter to the Complaints and Compliance Committee in terms section 37 (4) (c) of the Act.
PART VI
Submission, filing, review and tlmeframes of agreements
17. Submission and review of interconnection agreements
An Interconnection agreement and interconnection amendment agreements must be submitted ta the Authority in terms of section 39 of the Act within 5 (five) days of the date of signature of the agreement.
1 B. Consideration by the Authority for compliance
(1) The Authority will notify the parties in ·wtiting within thirty (30) days of submission whether the agreement is consistent with the Act and these regulations,
(2) Jf the Authority delays in notifying the parties of ·comp!Jance beyond the stipulated thirty (30) day period in regulation i8(1), the Authorlty will provide written reasons for the delay to the parties to the agreement.
661 Repr<'du.ccJ by S®i;u:t OnlJ11c ill lenm ofG~v•rnment l'ri11-1£r's Copyright Authority No. IG505 Jatctl 02 February 1998
srAATSKOERANT, 9 APRIL 201 0 No.33101 13
(3) If the parties to the agreement do not receive any written notification !tom the Authority within the thirty (30) day period, the agreement is deemed to be compliant
(4) Where the Authority determines that the interconnection agreement is consistent with the Act and these regulations, the Authority will notify the parties.
(S)Where the Authority determines that the agreement is not consistent With the Act and these regulations, the Authority must direct the parties to agree on new terms and conditions that are consistent with the Act and these regulations within a period determined by the Authority which period must not exceed thirty (30) days.
(6) Where the parties submit an amended agreement in terms of section 39(6) of the''Act, the Authority must notify the parties in writing within thirty (30) days whether or not the amended agreement is consistent with the Act and these regu!atlons.
19. Filing of Interconnection agreement
An interconnection agreement is considered to be frred with the Authority in terms of section 39(2) of the Act after the Authority has reviewed the agreement and notified the parties of compliance.
PARTVJI
General
20, Commencement date
(1) Parties may agree on a date to commence interconnecting. Notwithstanding that date, the Authority may direct the parties to amend certain terms and condition of the agreement based on the outcome of the review of the agreement.
(2) In the event that the parties have not agreed on the date of commencement, such dcite shall be the date Of notiilcation of compliance.
21. Suspension and termination of agreement
(i) An interconnection agreement must provide for suspension and termination procedures that minimize any adverse effect of the suspension or termination of services on end users.
662 Raprotlupetl hySab4ret 011/in" ,;, temis afGovern"'e"t Priiil<r's Copyrlg1't Autl101ity 1Vo. 10505 dlited 112 Fd>ruary 1!)98
14 No. 33101 GOVERNMENT GAZETTE, 9 APR!L 2010
(2) An Interconnection agreement must not allow for the suspension of interconnection .except where this is necessary to address quality of service degradation of electronic communication networks or services or other material threat to the maintenance of the interconnection.
(3) Neither pa1ty to an interconnection agreement may terminate an interconnection agreement unless the termination is as a result of:
(a} material breach of the interconnection agreement;
(b) vis major. or
(c) the liquidation, deregistratJon qr Insolvency of one of the parties to the interconnection agreement; or
(d) the parties have mutually agreed to terminate the agreement;
(4) Either party to an interconnection agreement must give.prior written notice of its intention to terminate the agreement to the Authority and the other party, specifying in such notice the grounds for termination atid, in the case of material breach, requiring that the breach be remedied wlthln a period not \ess than thirty (30) days.
22. Contraventions and Penalties
(1) Upon a determination of non-compliance by the Complair.t and Compliance Committee in terms of the ICASA Acl, the Authority may Impose a fine not exceeding:
(a) Five Hundred Thousand Rand(R 500 000.00} for contravention of regulations 10: 11(3) and21:
(b) Fifty Thousand Rand (RSO OOO.OD) for contravention of all regu\ations not specified in regulations 22 (1) (a) of these regulations:
23. Short title and commencement
These regu1ations are called the lnterccinnect\on Regulations, 2010 and commence on 30 June 2010.
663 Reprudu~d by Sabi.net Online i11 rams ofGovernmenll'rfrtWr's Copyrigl<r Authority No.10505 date<! 01F<hruary1998
STAATSKOEAANT, 9 APRIL 201 0 No. 33101 15
24. Transitional provisions
(1) Any interconnection agreement concluded prior to the commencement of these regulations must be submitted to the Authority in tenns of section 39(1) of the Act in accordance with the time periods set out in the following table:
Year interconnectfon agreement Date to be submitted to Authority entered Into On or before 01 Januarv 2007 On or before 31 Januarv 2011 On or after 01 Januarv 2007 On or before 30 June 2011
(2) Before submitting an interconnection agreement to the Authority In terms of thls section, the parties must review the interconnection agreement and amend the agreement where necessary to ensure that the agreement complies wlth the requirements of these regulations and the Act.
(3) The process set out in the Act and t>-iese regulations applies with the necessary changes to the review by the Authority of interconnection agreements submitted fn terms of this regulation 24.
25. Repeals
The Interconnection guidelines published in Notice 1259 of 2000 Government Gazette Number 20993, the Supplementary Interconnection Guidelines published in Notice 3457 of 2002, Government Gazette 24203; the Interconnection and fac\lities leasing guidelines and supplements published In Notice 1301of2004, Government Gazette 26539 are hereby repealed.
3) WORLDTRADE ~ ORGANIZATION-
!About WTO
TEU'COMMUNlCATIONS SE!IVICES: REFERENCE PAPER
24 April 19%
WTO member;hlp Documents and · re>ourc~s
Negotiating group on basic telecommunications
,WTO 11nd you
The following are def1nit1ons and prlnc!ples on the regulatory framework for the basic te!ec.ommunicat1ons services.
Uoer> mean service con•umcr• and •ervlcc >Uppllers.
Essential fadlltlm mean facllttles of a publlt: telecommunications lrOnsport network or service that
(a) are exclusively or predominantly pn:i~lded by a single or limited number of supplier>; and
(b) cannot feasibly be economlcaliyor technkaUy substituted In order to provld" a service.
A major supplier ls a supplierwhlch has the abitlty to materi•\ly affect the terms of partlcipat\on (having regard to prire and suppty) fn the relevant market for basic telecommunications service> as a result of~
[a) control over e;;entlal facl\lties; or
(b) u,e or It• po>itlon In the market.
1. Competitive safeguards~~.~
1, 1 Preventton of antf·cornpetit1vepractkes In tolecommunkatloos
Appropriate measure• shall be maintained for the purpose of preventlna >uppllers who, alone or together, are a major supplier from engaglm In or continuing ant!·competitfve practice<.
1.2Safeguards
The antl·competll!ve practice; referred to above •hall lndude tn part1cular;
(a) engaging In antl-<:ompetltlve cross-.ubsldizatlon;
(b) U<ing fnfo,mation obtafr<ed from competitor< with anti· competitlveresUlt•; and
{C) not making aval\ab\e to other services suppl1ers on a tlmB)y basis technical information about essential facilities and commerciaUy relevant lnforma~on which are necessary for th..m to provide servke..
2. !nterconnectlon ~~~
2. t Thi• 1ection appll"' to L1nklns with >UPpliers providing publ1c telecommunlr:atlons transport networks or service; Jn order to allow the users of one supp\fer to communicate with"'"" of another supplier and to access >ervkes i>fOVided by another supp\ler, where specific commitments are undertaken.
2.2 lnten:onncctlon lo be ensured
Interconnection with a ma)or supplier will be er>iured at any technically feasible point ln the network. Such intErconnectlon ls orovlde<l,
(a) under non·d1-.crfmjnatory tcnns, condition• (fncludlns technical standards and specifications) and rate; am:I of o quality no \ess favourable than that provided for !ts own ttke service< or ror Like se<VIO!< of non·<lfflllated •arvlce suppUe" or for 1ts sub<ld1Mles or other affllfa~s;
{b) In a timely fashion, on terms, conditions (fncludln!i te<:hnlca\ standards and spedrkatfons) and cost-oriented rates that are transparent, reasonable, havlng regard to eairmmlc feasibility, an\i sufficiently Unbundled so that the supplier need not pay for network CO')'ponent> or facilities that It does not require forth• oervke to be provldod; and
(c) upon rE-quest, at points in addltloo to the netmrk termination points offered to the majority of users, subject to
charges that reflect the cost of construction of necessary
additional faci\iti~.
2.l Public availability of the procedures for \nt•rconnectlon negotiations
The procedures applicable for interconnection to a major oupp~erwill be madepubOcly available.
2.~ Tran•parencyof lnterconne<:tion •rrange.'1'ents
It Is en•ured that a m.._jor supplier w11\ make publicly •Va\lable either lts fmerconnecUon asreement• or a rererence fnterconnOO:ion crf.r.
2.5 lnterconne<:Uon; dispute settlement
A servke supplier requesting lnterconne.:tlon with a rn<1jor su~plier wfll have . recourse, ~lther:
(a) at any time or
(b) alter a re•«ITTable period of time whkh has been made
?UOlfdy l<!lown
to an Independent domestic body, which may be a regulatory body as
reterred to ln paragraph 5 below, to resolve disputes regardln~ appropriate term>, condition> nnd rates for !ntercorinectlon within a reasonable period of time, to the extent that these have not been estubll<hed prevlously,
3.. Universal service a•dttoT'"-
Ariy Member ha< the right to define the kind of unlve.,nl se<Yice obli~ation it wishes to maintain. Such obligations w1ll not be regarded as anti· Qlmpel!tfve per >e, provided they are administered fn a transporent, non· dl>crimlnatory and coml'<!tltlvelyneutrat maMer and are not mo~e burdensome than nece.-Sar'J' ror the kind of universal service defined by \he
Meml>er.
4. PubHc ;:ivallabi11ty of licensing criteria ~"-~~
Where a \keiu;e is required, the fo\\owlng wlU be made publidy available;
(a) all the lkens1n~ crlterfa and the perlod of time normally required to reach a decision concemfng an application for a licence and (b) the terms and tondftfons of Individual licences. The reason> for the den fa\ or a Licence wm be made known to the applicant
upon request.
5. Independent regulators ~~\2.1!'11
The regulatory bodyio separole from, and not accountable to, any supplier of basic telecommunications se<Ylces. The d<'Clslons of am! the procedure; used by regulato" shall be lmpartla\ With respe<:t to aU market participants.
6. Allocation a!ld use- of scarce resources ----
Any procedure• for the al\oC<ltlon and u•e or scarce re•OUrce•, Including frequencies, numbers and rlshts of way, wi~ be C<lrrled out In an objective, time~, trart::parent and non-dl<erlrnln•tary ;nanner. The current >ta\e of -"-""""~ .. _ .. ___ , ---~- ··'" ,_ --~- _,,,.,_,,, -··-"-~'- .... ~---"-'
665 4\iu< .. n~u ''"""~'IL'J' "'"lU' Wlq ""' rc1do"' puot1~ty av4n~u.,, uu< u~•dU«u 1dentlflcatlon of fre~uencles al\ocatod for >p<'ciflc government u•cs Is not required.
The Wocld node Or~~llit,tlon \\'ITOJ cl.,..1< 'Hith th~ •.loba\ rule. of t1·~de b<>tv.<lso\ oatfon>. lt< m;.in fu,utioo is to ~nsure th•t ttads ik""' ao smoothly, pl'~dir.tabl~ ~nd fre<"lY » posslb\e.
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Wh•\WO<lll
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666
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Focebook YauTuloe
NB ,B67
- ," ' ~ '-. - "" '
' ' ~:- " 1 ' Ev1dencefor:JCT.PohcyAct1on 1 , \-
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Policy outcome 5: high mobile and fixed retail prices South Africans are only now, w1th the last termli;ation rate reduction in the current glide path D"n March 2013), beginning to see the benefits of compei:ltlve pricing pressure in the prepaid moblle market. Yet, prices for prepaid mobile, the service med by the majori1y of citizens and particulaliy the poor, still remain high in compar!;on with other African countries, as discussed below.
As a result of the second reduction of the MTR in March 2012, Cell C was ab!e tc OJ! fts prices to ZAR0.99 per minute -b€1ow the psychologlcal ZARl.00 barrier - and this was foll~d byVodacom br1dly, butVodacom"s cheapest price went bad up. Follow!ng t'ie third wholesale termination rate cut in March Xll3, Telkom Mobile lowered its tariff to ZAR0.95 per minute (through a service bundled with Te~kom fixed-line provision). becorring the lowest-priced oroduct offering in 1he country.The price cuts put pressure on the taiiHs of the two dominont operators, as they were losing market share.
Mm, having resisted price cu1s throughout 2012, and after losing almost half a million subscribers iri March 2013 due !o the migration of users towards cheaper operators (despite the popularity of its dynamically priced offering MTN Zone), Will i'orced finally to reduce 1t5 tarlfu and introduced MTN Dne4Alt a new tC.it tariff se1 at ZAR120 per m;nute with per-second btlling. Slrniiarly, Vodacom Introduced Anytime per Second, set at the same price as its competitor MTN. However, the incumbents, while maKh!ng each other's price, did not go down to Cell C's lowestprice offering of ZAR.C.99 per minute. which last entrantTelkom Mobile did (as we saw above) mat'h and even go lower than.
ij i1 ij ij ij ij ij ij ij 0 a 5 8 0 5 ~ 8 &
"" - Cellc MTN South Africa -.Virg1nMobile ..;....,.;· Vodowm South Africa
figure 6: Cheapest prepa\d moblle product by operator In South Africa, based on OECD" lower-user basket of 201 0, fn ZAR
ij 5
11 In order to overcome comp~rar;ve pMce complexities ~t le2$1 ;::ractiuilly. rhe O;ganisa:ior. ~or Ec;onomic Co-op<:ratlon ;md D~lopmen> M• oeveloped a "price benchmarking bo•kfts' methodology. This methodol09y is bosed on 40 cal1' In a "10nth and disL ibution of ea 11' acros; time and off--net anci on-net Although th~ 0"'""11 basl<et volume. and d~11lna1ion dimibutio" In !he original OECO baol<.et also ;ndude voicemal( RIA hos remO\le<:i voice mall ~orn the ba1kei and redi1mbu:ed throughom &ie amoom of on-net and off·net calls beca.use voicemail is free o( charge with the majmity of African operators. See OECD (2010).
These pricing moves demonstrate that the dominant opet<itors MTI>l and Vodacom, which have historically been entrenched in the market are finaliy being affected by the price-cutting effom of late entrants Cell C and, rr.ore recemly,Telkom Mobile.The dominant operni:ors are r,cw reacting to price pressu~e, as prlce-s.ensirlve u~ers migrate towMds smaller operatOfs.
MTN has consTstently had the highest price in Sou~h Africa for Its che;ipe;t prepa;d product lri terms of the Organisation for £conornic Co-operation and Development (DECO) 2010 prepaid low-user mobfle basket (40 c;alls per month prepaid), with its 2012 cheapest lower-user bask~t cost sitting at ZAR167, while Vodacom's cheapest prepaid pricing has been constant and marginol!y lower, sittin;i at ZAHl38 in 2012 for the OECD monthly lower-user baske;: (OECD, 2010). ln the ftrst quarter of 2013, following price pressures from smaller operotor; ond the enrorcemem of the third reductior. of N(TRs, both MTN <md Vodacom reduced prices to the equOialent of ZAR1 22 for the O~CD lower-user basket. still higher {han the cheapest tariffs of the small operators. Cell C~ low-user basket cost l> now at ZAf',10, while Telkom Mobile's is at ZAR103.Te\korn Mobile in 2013 announced a promotion that would see its on-net price at ZARO.SS per minute and its off-net price at ZAR0.95, the lowest mobile p1ices ever offered in south Africa. Whet'1er Telkom Mobile keeps Its prices this low, and ls able to pressure other operators to reduce prices. rem aim to be seen.
Sudan llBJi'I
Guinea 1::==~ -""" Ghana
Egl'Pt
""'"'"'liiL.l Ethiopia
Tanzanlo
Nigeria
Se;m1 Leone
South Af~c:a
Rgure 7: South African prepaid mobile prices Jn relation to the 10 cheapest countries In Africa, based on OECD lowe•-U•erbasket of 2010 ~"'·'(~: ;-;('. !'h"Tng '""!'>i''''"NY .';W•r<:i',,.,,,.,,d Mni'Jk',!.ir,o
When comparing South A'Tica w,'th oihet Af!ica:i coJmries in terms of the OECD 201C lbWe.'"user prepaid mob; le basket South Afrk.a is seven tlmes more expensive:h.;n the cheapest country (Stjdanl surveyed by RIA in Africa and twice as expensive as Sierra Leone, which is only ihe I O'' che;;pes1 country In the RIA ?rlcing Tramporency Index; Prepaid Mobile. This comparison with other African countri~s studied by RIA s'iows that although :he enforced r~ductlon of MTR:;;, and prke pressures, have brought about a reduction of tarlfu, South Africi's prepald prices continue to be very expensive in compar;son to many other African countries. I~ Tab!e 6 below, South Africa comes 23'' out of 46 operawrs measured across AMca in the RIA Prepaid Mobile Price Index in terms. or the cheapest prepaid mobile product in the country, and 26" in terms of the cheapest prepaid mobile product in the country fom o dominant operator.
668
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669
\/Vhile prices are high across all .,ervices in South Africa, South Af:ica~ high prepaid moblleprlces, and poor shC'Mng on this measure compared to other African countties, is of particular concem as a policy o~tcome, as prepoid mobile ;el'\lice; are the communication services most used by the poor.
Table 6: March 2013 prepaid mcbile rnsts ba.1ed on OECD lower-user basket of2010
- % ~he°iperthan dommanl
Oamfnam Is cheapest
Domin am Is cheapest
41.0%
141 615%
6,48 14
7.82 11 7.82 17
9.17 13 632 11 31.1%
9.48 15
\2.33 17
1275 19 _12,75 24 Dominant is cheapest
\3.16 21 \145 2l 5.4%
'rJwrt•:/,'M ''r,rm;1 '/J,""•xrnwliml
670
" 61B 10 53,8%
25 11.75 18 19.8%
" 14.72 29 15%
29 15.52 ll Domin am Is cheapest
31
]] 17.13 J7 1.1%
35 1857 J9 2.6%
17 19.41 " 13.9%
39 22.92 44 Dominant is cheapest
41 19.28 40 18.8%
43 29.82 '° Dominant is cheapest
;·. f''f"''~ ~\nMe ti11m :m ;I
NBG/1
'C, .~ / ' I " ~ ~ - ~ I - '
~ ... Understanding whatis: happermgJn ICTmSoutbAfrica ~ -' '
Policy outcome 4: high wholesale pricing
faci! ities-leasing
Lea,ed lines remain t'le rnojorfacillty required to build higl;.-capadty ICTlinks between and within disper>ed enterprises. and are o majm input cost foi the services sector. Although leased-line p'ices have come dovvn via some competition from Neoiel m the corporate market, Neotel's product offerings ere not -all 1ubstitutable and the inOJmbent Telkom hast he advantage of being able to offer turnkey solutiom. The leased-line pricing structure hos also beeri offected by the lntroduciion ofTelkom's ADSL service, which omaller-usage businesses have shifted to from more expensive leased lines. South Af;ica has high le~sed-line prlces in comparison to most OECD countries for 2011 (see Figure S below). (And It must be noted. in analyslng the data in figure 5, that the high cost of a 34 mbps leased-line in a country S\Jch as Korea is largely a result of declining demand for that relativelylowievel of bandwtd1h.)
~:: :~;;,:t;~=~~~~~i;~~~;~~:;~t;;1:{~i=~;;;~:;~~23St:
Sout:h 11frico i~~~~i~~;~~l~~~~~f :,~:~·n9580 Ireland , ""
Oinada
United Kingdom '1~ ios-
Portugal
fr.mce Jap~n -,- '1
ltoly
Turkey [ili",o~~'illi~J:'.)~~~~PJ~~~(~;)~i 793 \
Greece \i,]~-1!P6~\:Q:~_;';!,ii' ~;;,:r£R;S:::'7597
United Sto1es
Ausrrla :::~:::1~~~::' Belgium
"'"'"' Au;<ralia 1[Qi\~~i_:it_~~~i~~~j;'ii}1i:~ 5' 84
Denmar~ :;.,~•1 1 ;:,SYJ'.f.~'TI~'i~! 4014
Luxembourg ;;!tC,!~"i!~~:it0:-;·· 3531
Norway ;•p:o;,;;;- !2016
Iceland ;c~;~·~ 954
Figure S: National leased 11ne pricing (per month] b~sket:I~ mbps IUSD PPP]
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Termination rates
The mobile termination rate (MiRl - the rate that opeiators charoe each other to termin<ne calls on each other's r.etworks-was first reg·Jiated In Soutli Nrica In March 2011.The rationale forregula\ory intervention in MTR pricing is that call termination Isa monopoly: while c:a\l origination can be madecompet:tive in n1Jrr:e1ous ways, there is sfmply no alternative to terminating a caii on the network of the op<>r;itorwhich O'Nns the n1Jmber a caller is trying to re3ch. Termination rate> ab~ the cost of an efficient operator distort the market and produce an\i-cornpetitive effect>. Given that mobile termination[; an inherent monopoly, regulators have :io alternative mechanism besides adjusting termination rates In line with costs - If such adjurnr.ents are not made by operators. Cete.rminirg cost> can be dorie by a regulator thro1Jgh a benchmarking exercise cftermlnation costs, such as was 1.Jndertaken in Namibia in 2009, or through detailed cost nudies such as those undertaken In Botswana, Kenya, Nigerio, Tanzanra, and Uganda.' There Is now overwhelming internationol evidence from across the world that cost-based MTRs encowage conpetltion and more affordable pricing.'
In October 2010, ICASA gazetted its MTR regulations, effective from March 2011. i'rom a peak rate of ZAR0.73, the October 20\ O regulation introduced a g ij de path tow~rds ~ peak and off-peak termination rate of ZA.'\0.40, achieved In March 2013. But this MTR of ZAR0.40. now In place, ls stlll well above that of many other Africa:--. countlles and above what is globally considered :o be the cost of an efficient operator. In Namibia. 1he MTR has been cJt from ZAR1.06 (a simiiar price to that ofS01Jth Africa In 2010) to ZAR0.30 in leis than two years. 0-Jier countries such as Kenya and Uganda now have MTfu belowUS$0.02 ~approxlmatelyZAR0.20 at the August 2013 exchange rate.)
Table l: Mob Tie termination glide path In ZAR - - Off-:-t>eak , t" 0.73 0.65
Cost-based Mffis remove market distortions and provide efficlern Investment incentives. The net e'.'fect of fairer competition is lower costs of cornrn1JniG~on, better services. and· mOre equit3ble returns on Investment for all operators (Stork, 2011 , 2012). In support of retaining htgh MTRs, dominant rr.oblle operators have argued tha! lowering l/iIBs leads to Increases in <iccess and use prices,• iesul!lng in fewer people being able to afford comrr11Jnic;at1on
4 The regulators cor:cemed would do well to ihore the resulcs of-.hese >tudles with other regulator~ beouse in l'<l>tly dlfferen;c environmen\5 the re>Ults hove 1ended to be vory sirr.il3r, 5 See, for ei;ample, Stmk (2012) fur DECO i:ounnies. 6 This fsof\en linked to the wawC..d iiffectand the two·->lded market argument [Vodafcne,2007).
673
- ' - " ,' ,- - '" , ' ~' l ' ' . . ~/Jnderstandmgwhat1shappeningililCTmSouthAff~a ' · ', ,_· - -: , '
services and lower profits (which would limft operator'>' capacity to invest In network extension and upgrading), RIA has been umble to fa1d evidence ofihls dynamic In any jurisdiction examined by RIA In Afrle<i (see Gillwald and Stork 2012), and this dynomic ls not present in South Africa.
Incumbent operators are quick to point out.and the media to report the loss in revenuesuffe1ed due totennination rnte Cut>, while generally omitting to report on ;ncuf"\bent operawrs' cost savings from 'educed termirl<ltion payments. Operators receive termination revenues f,om,and pay termination fees to, other operators. The question is thus not whether an operator hos less revenue from termination after MTR cuts but rather, how the net profit or net loss from termination has changed and how thi5 affeas the operator's overall perform< nee. For example, the annual r.e;: profit from termination of South Africa's largest mob I le operator, Vodacom, increased by ZAR66rnillion, despite a red\jCtlon ln its Incoming terminatlon revenue, after MTRs were cut by !CASA (see T~ble 31. Strangely, the Incumbent fi:i:;ed-line operator Telkom, which has been at the wrong end of osymmetrical termlnailon rates for nearly two decades, also complained about a loss in termination rate revenue through MTR cuts.' In reality. Telkom'; total interconnection rev~nues increased in the 2011-12 financial year.' As one would expect with there being over 60mll1Jon SIM cards active across South Africa's mobile networ!<s, Telkom is a net termination rate payer. Accordingly.Telkom~ nette'mlnatlon payments decreased, largely due to the MIB reduaions, li'om ZARSl::ilfon 1·n the 2009-10 financial year) to ZAR3.I billion in 2011-12, The logic behind Telkom's complaints about the lv'iTR rate cuts thus rem aim unckor, unless the operator was asking forgieater mobile-fixed symmetry (an argument Telkom has not made explid1ly).
Lower termination rates mean only that net payers pay less and net receivers receive less. MTN, for example, is a net receiver. Its net profit from call termination (revenues in excess of expenses) for South Africa decreased from ZAR1.08Sbilllon (In its financial year ending December 2010) to ZAR74\million On its financial year ending December2011), a decrease ofZAR644million and not a loss ofZAA2.Sblllion as claimed in May201 t. Its termination revenue decreased by ZAR644milllon in 2011, while Its termination exper.ses dropped byZAR300milllon, leadlng to o net reduction In 1ermination revenue of only ZAH344mllllon In <Cl 1.9 MTN's (apex, revenue, and EBITDA margins all increased in its financial year ending December 2011 compared to the previous financial year. MTN'> implied per-minute price (ARPU/MOU) decreased by ZAR0.20, becoming similar to Vodacorn's imp!ied price. The estimate for MTN is based, however, on blended ARP Us (because prepaid ARPU and MOU aie not reported separately from postpaid APRU/MOU by MTN).
?Telkom SALimlied (2011) STelkom SA Limited [2012). Atthi~ ~me. Telkom had >Old it> lucrati11e shareholding inVodacom (which had enjoyed significant revenues ror )'!'Or> from some of the highest (osymmetrbl) termination tares In the world), and now had its new mobile iervl~e Telkom Mobile. Telkom Mobile d;d manage to secure. from the regulatm,an a>ymmetrkol \ermlnotiOn tat~. together withCdl C, for it> terminations with 1he dominant operator> Vodocom •nd M7N, 9 See MTN {2011)
:)p;f:1o<p1· / 'hiD iA ~ ilit1·~;in;_ ill(ll'ci'(-'d
i11;ir,du.~ttn:1 (,f f/)1· t;;f•·';f:t' F•,'i/i'lil1!'!{1i-'!l
r,1:•·'qlidi,P'11'h
674
Table4: Mobile termination rates In RIACmintr!es ·2013 updat~
GHS 1.84
ZMK 5 066.37
ZAR 8,20
NCA set glide path lo 4-50 Ghana pesewa In 2013 and 4Ghana pesewa
2.4 lor 2014, SMS on oil mobile networks NCA {2010) 0.7 from 2012, then 0.6 and 0.5 in 2013and2014.
O.O further reductions to S US ce:"tts by 1 ZICTA (20101 ;an. 2012
4.9 March 2013
Because they are private. unliHed companies and non-dominant players, iio public information l> available for Neotel arid Cell C in relation to the Impact oFMTR cuts. These operatOrs were rmt willing to divulge such information - even In generalised form without actual figures. With Vodacom and MTN being net receivers (Vodacom even receiving more in 2012 than in 201 i). and Telkom being a net payer but paying less In 2012 than in 2011 and 2010, one can assume that Neotel is a net payer.'0
I o Tnis highlights tl".e need for ICASA to collect aavol ftgure1 for oll lf'.rerconnectlon 1evenues and payments from operator.;, for S<ordard•sed lime period1, in order to d~;errn;ne exactly the irnp;CT of termir.atkin rare cut~
675
"·,~ ~ ~ :,, "•- ~'ii L ,"'.,1
~;;; ' , > 1~,._ _ I _ ' " • ~
.._~ Undeistani;img what is hapP.erim9 rn JCT In South Afrtca ~ , 1 -T ,' "-
The neg;itive SOuth African stakeholde1 perceptTon relating to Interconnection, as renected In the TRE assessment oLttl"nedabove, s;ems from the belated and insubstantial na1u1e of the termination rate reductions in South Africa via Ks iecent glide pGth. Until the cuts of MaKh 2a 13, the reductiom were insufficient to produce che p<:isitive competitive _ outcomes on retail rates witne;sed in other coumries. Before 2013. dominant operators Vodacorn and MTN were able to withstand short-term pressure on retail prices as the morginal smailer plaver~ were unable to leverage the small lncremems by which termination rates had been reduced to signiflcandyundercutVodacom~ and MTN's prices. (Mo~e is said below ~bout mobile operators' responses to the MTR glide path, particularly the March 2013 MTR.cut.)
Table 5, Fixed termination rate reductions
019 0.16
0.29 0.15
0.28 0.16
0.15 0.\2
On the fixed side, termination rates have remained asymmetrical. with very !ittle reduction in the rate bet\Neen 2006 and 2013. A fiat termination rate across bmh ~xed and mobile would improve the vrabllity of the iixed network operators, who also fate the challenges of building out next-generation networks.
2 No. 52626 GOVERNMENT GAZETTE, 9 OCTOBER 2009
CONTENTS • INHOUD
No.
GENERAL N011CE
lnd9pernfont Communications Authority cl South Africa
Gen.,ral Nolke
1367 lnde11endent Communications Authon'ly Ao\; SubmJsstons to qu'Jls\lonria.lre.
NBl76
Page Gazette No. No.
32628
l r;-,
677 STAATSKOERANT, 9 OKTOBEA 2009 No. 32626 3
GENERAL NOTICE
NOTICE 1367 OF 2009
INDEPENDENT COMMUNlCATIONS AUTHORITY OF SOUTH AFRICA
1. On the gth oi November 2007, the Independent Commu~lcations Authority of South
Alrica (the "Authority'') published a Findings Document on the market for Call
'Te~mir.atlon in South Africa (Government Gazette No. 30449).
2. The Findings document also states that "No pronouncement Is made on the
effectiveness of competition in this marker (Govemment Gazette No. 30449, page 9),
3. The Authority, pursuant to Se~tion 4(3){g) of the Independent Communications Authority
Act regulations entitled Standard Terms and Conditions for lndtvldual/Class Licences
{Government Gazette No. 30530 and 30512 respectively) Informs all firms w~h an
Electronic Communlca:tions Network Services and/or Electronic Communications
Services Licence of the release of a questionnaire seeking lnformation with the following
objective, amongst others:
678 4 No. 32628 GOVERNMENT-GAZETTE, 9 OCTOBER 2009
To evaluate the effecltveness of competition in the Cal\ Terrnlnation rna.r\\et ln
South Africa.
4. Alt Licensees are required to submit their responses to the questionnaire by 2G
November ;?009,
.S. The questionnaire and supporting documents have been circulated to a\\ Licensees, and
are availa'b!e on the Autl)ority's website: www.icasa.orq.z:a
6. For any queries regarding the.questionnaire please contact
Mr Pieter Grootes Markels and Competition Analysis ICASA frlvate Sag X 10002 Sandton 2146
Fax: (011) 556 3642 Tel: (011)5663641
OR !CASA Block.A Pinrni11 Farm 164 Katherine Street Sandton 2146
Emal!: [email protected]; cc: [email protected]
[Lt, -N6Mtl'M¥ BATY\
ACTING CHAIRP8.RSON
!CASA
Printed by and obtainable from 1he Government Printer, BOsman Street, Private Bag X85, Pretoria, 0001 Pub\\catlons: Tel: (012} 334-4506, 334-4508, 334-451 O
Advertisements: Tel: (012) 334-4673, 334-4874, 334-4504 Subscriptions: Tel: (012} 334-4735. 334-4736, 334-4737
Cape Town Branch; Tel: (021) 465-7531 Gedru\c deur en verkrygbaat by die Slaatsdru\cker, BoSm<i.hstraat;.~rivs.atsak X85, Pretoria, 0001
Publlkasies:Tel: (012) 334-4508, 334-4509, 334-4510 Advertensies: Tel: (012) 334-4573, 334-4£74, 334-4504 Subskrlpsles: Tel: (012) 334-4735, 334-4736, 334-4737 {h
Kaapstad-tal<: Tel: (021) 465-7531 , ~¥
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SECTION F ·COMPARATIVE DATA (To be i:on1pleted by al! ECi/ECNS lloensee•J
In the table be!ow Ucen<ee 1, Uce1'see 2 ond Ucencee 3 refer to the licensees' (o) to wham the mo>t off net minutes were sent by the "'spondent{OIITGO/NG !X MINUTES) (b)/tom whom the mo>t off net minutes were received b~ the respondent (INCOMING IX MINUTES} (c)/ram whom the m<l<t lnterconnec~·on revenue wos fl?Ceive.d by the tespondent(IX REVENUE) (d} to whom Hie highest interronnectfon payment was made by the reopondenl(IX COSTS}
(e) from w/oom the must off net SMS' were redeved by the responden!(SM5 Incoming) If! to whom the most off net SMS'were sent by the n;spondent(SMS Outgoing/
Note: Ucensee l is the highest/most; Vcemee 2/s the semnd highest/most; Licensee 3 /s tloe third hlghesl/mostfurogiven holfyearmeosuredfrom January to lune (H1) or July to December (H2/
-~::'!~f,_C1!il t~!-~''!i~'Y:;lii;l(':,\i~)IJ-'c-i·•;1;~~,i·: ~ (;;J'qiitgO_\~':t):!,Mffi'1,1~-Wt!'; !)}t"Cil'", foitltM_f~@i-~'~}, -~; {Cf1Jtct!ey_et]il;l:;-Jt'j;hn~r,~; @Ji' -gJrtp·~' '"li!\Q'. ;[i/i~r~ :,, (~l;SMSJ,i'ii.>'i!fiii'i&-!'',1\:~;;lj!:'.~- (f)JOOS:Oui!itilrli:"A'~'i :~:;~
H1 201)9 ITCl3! It '"g.1
licensee 1 1Jmert Ucemee 1 Nome f. Licensee 2
[Insert Ucensee l Nome/ licen<ee 3
'·~' 110; '.-:1~.;-~:,1:_Lm:;-ri:;,;;'.i::r_:111f· f-'~'i!~i""''11i1i~:0".1fi',1!;:>1fi1:rJ·(' HZ 2008 IT<>ta\ ~
licemee 1 /insert Ucensee 1 Name] licensee 2
/Insert Lfc.nsee 2 Name]
licensee 3
/,,',,,. [,,:,.. rt"''·.,,,,, "''"'·•'''"''"""'f''"""1'"'"''"''''' "'''~1PI 'I 'I 1 •. 1 I ' I lken>ee 1 ' '" ·'
,~;;~.'t'1!@~~7:trIT:lllli:-i!01~Y'. h~'ii/,'.,\:11i-fOi/_ ,_G,Jr11;,:f >f;s
/Insert Uc.nsee 1 Name)
Licen•"-e 1
'Insert Ucensee l Nome]_ Lic..nsee3
-\-i.~1:~1 1 Hl2aa7 fTo\alll
~g? ''0,6'
Llc•n••e 1 /lmert LJ[en>ee 1 Nome] Uconsee2 /lt>Serl. Licensee 2_Name]
fl1cons•• 3
Hl 2007 /To>ta\ II l.lcenseo 1
[lt>S_E_ttU~ns~~1 .. f'!~m_!l_ licenseo 2
I lfl"-'•iJ_Ucensee l Nome] lkensee3
H2 2006 )Tol•l 11
License• 1 /ln<ert Ucense" 1 Nqm<J licensee 2
/lnsertUcensee 2 Nome] Ucen<ee 3
,f;1:flfoi: Hl 2006 ITot•l 11
lkcnsee 1
I~
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·insert licensee l Name 1.;'
Ucen<•e 1
{lnserr Ucerisee 2 Name Lkensee 3
,~~g:;y('J :~~-.!i1'f:fi!!:lt:!,\.;l;fj}i'f~1ili;;T!;if!if;11 HZ 2005 {Tola\11
l.lcanJeel (insert Ucct>See 1 Name/ 0 ~-· . /Insert Licensee 2 Nam~! llcensee3
Hl 2005 I Total#
i\'·i'~;;~::"ih:1,1,;·e,':lii:'.'.\':i,'t' 'i'.ii.~t (:'t;>:l?:'~,W-'Y~:~.!~_::j ,;~;1u;; ~·\';;~.'~Y'PJf:cy.~;,
Licensee l
[Insert ikensee 1 Narn_e) Licensee 2
l1tsert Licensee 2 Nome} '--l«>nse~il
/fnserl Ucen<ee 3 _Nome]
~-= ~ . ~
693
694
696
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- lnder,ter~dent Co1nmun1cat!ons Authority of South Africa Pinrnill Farm, 154 Katherine Street, Sandlan
Private Bag X10002, 83-ndton, 2146
A GUIDELINE FOR CONDUCTING MARKET REVIEWS
The Authority issues this document to provide clarity to stakeholders and licensees as to how market reviews are to be conducted, including the public consu~atfon process, the relevant powers of information-gathering and the types of information v1:hich may be requested.
This document is intended to be used as a guide and may _be updated from time to time.
Date of issue: 08 March 201 O
i. Introduction ..
1.1. Purpose ...
Contents
. .... 3
.. 4
2. The publjo consultation process ............. ............. .. .. 4
3. The process for ldentlfylng the need for pro-competitive regulation in the South Atri9an ICT sector. .... ...................... .. ... 6
4.
3.1. Legislative requirements .... . ....... 6
3.2. Factors to be considered when defining a market ... .. ...... 7
3.3. The methodology used to evaluate the effectiveness of competition. ....... 10
' 3,3:1. Factors to be considered when evaluating eflectiveness of competition ........ 10
3.4. A discussion on possible pro-competitive terms and conditions .....
3.4.1. Transparency, non-discrimination and accounting separation,
3.4.2. Price controls ....... ..
3.4.3. Controls on the type of services to be provided
3.4.4. Other remedies.
... 13
.13
..... 14
....... 14
... 14
The Authority may impose any other pro-competitive terms and conditions designed to address any Identified market failure. This could include the requirement for functional separation.. . 14
ln!ormation requirements to complete market reviews .....
4.1. Powers ol the Authority to request information ..
4.2. 1imeframes and Collection methods of information ..
4.3. lnformatlon meetings W{lh Licensees
. ... 15
. ...... 16
.. 17
.......................... 17
List of Figures
Figure 1: Public Consultation processes .... .. 5
Ust of T ab!es
Table 1: Possible data requirement lor defining the market.. .. 15 Table 2: Possible data requirements to evaluate the ettecliveness of competition. , 16
699
'.,'.·
700
1. Introduction
The pream~le to the Electronic .Communications Act, no. 36 of 2005 {the "EGA") states that the EGA aims:
"To promote convergence In the broBdcasting, broadcasting signal distn'bution and telecommunications sectors and to prOvide the legal framework for convergence of these sectors; lo make new provision for the regulation of electronic communications services, electronic communications network services and broadcasting services; to provide for the granting of new licences and new social obligations; to provide for the control of the radio frequency spectrum; to provide for rhe continued existence of the Universal Service Agency and the Universal Service Fund; and to provide for fflatters incidental thereto."
The EGA introduces two key factors Into governance of the provision of electronic
communications services:
A technology-neutral regulatory regime
Explicit intention to facilitate greater competition in the !CT sector
The legislative mandate to e\·aluate and address market failures where they occur
stems from the South African government's policy of enhancing competition both
within the electronic communications sector (via the EGA) as well as the broader
economy (via the Competition Act, no 89 of 1998) .
The motive behind enhancing competition is to stimulate both allocative and dynamic
efficlency up and down as well as across value chains in the supply of goods and
services to the South African consumer. The objective is to ensure that the supply ol goods and setvices to the South African consumer is achieved at a·fair quallty as
well as a tair price. Achieving this objective requires a balance to be made between
returns on investment in the production and supply of goods and services to the South African consum.er and the price (including quality and consumer protection
measures) ultimately paid by the South African consumer for such goods and servlces.
The EGA explicitly acknowledges the importance of this trade-off by incluOlng, in the
objects o! the Act: 2(d) encourage investment, including strategic infrastructure investment,
and innovation in the communications. sector;
2(0 promote competition within the !CT sector,'
2(z) promote stability in the JCT sector
1.1. Purpose
The purpose o1 this document is to provide stakeholders with an outline as to how the Authority Intends to implement the provisions encompassed in the ECA aimed at enhancing competition. ·
The doctirnent is structured as follows: Section 2: The public consultation process
Section 3: The process for identifying the need for regulation
Section 3: Information requirements
2. The public consultation process
Give.n the importance of forward-looking regulation as welt as regulatory certainty the folloWing process will be followed to ensure regulatory transparency.
Step 1: Priority Markets
The Authority· wHI identify priority markets based on observable trends in the South African electronic communications sector, the need to regulate at the source of the potential problem as well as consideration of government policy objectives.
Step 2: A Market Review
A market review-consists of a specific focus on one of the identified priority markets
A complete Market Review cohsists of the following phases: 1. Conducting exploratory investigations into a speclfic market
a. Such work will include both the definition of a market as well as the evaluation of the effectiveness of competition within the defined market
b. The identification of licensees deemed to hold s(gnH'icant market power, if necessary
c. The identification oi pro-competitive remedies, If necessary 2. The development and flna\lsation of regulations on the outcome of exploratory
investigations, if necessary
The Authority will communicate to licensees the provisional-tlmeframes and specific processes within a market review at the time of commencement of a market review.
Depending on the complexity of a market review, the Authority may choose one of two consultation processes to conclude a market review, as outlined in Figure 1 below:
4
701
Flgure 1: Publ[c Consultat!on processes
Inform l!i:ensees of Authority's Intention to conduct an inquiry
!ntoa specific market
Release of request for information to licensees
Release of draft.position paper on market definition,
effectiveness of competition and relevant remedies, accompanied with draft
regulations under Section 67(4) of-the ECA
Publ!c hearings on draft position paper and regulations
Release of-final position paper and regulations for
implementation
Release of discussion paper on market definition, effectiveness of competition, dedaratlon of Significant Market Power and
relevant remedies
Publfc hearings on draft d!scuS'ilon pap2r
R ease indings oi::ument aa::ompanied wlth draft
regulatimlS under Sec:tlon 67(4) of the ECA
Pub!leHearlngs on draft regulations
Release offlnW regulations for implementation
This process indicates that the development of regulations under Section 67{4) takes place on the outcomr of Phase 1 of a market review.
702
3. The process tor Identifying the need for pro~competltive regulation in the South African lCT sector
This section discusses the: Legislative requirements to be met when considering defining and evaluating the effectiveness of competition within a market Factors to be considered in defining a market Methodologies to be used ln evaluating the effectiveness of competltlon
Regulatory measures applicable to enhance competition
3.1. Legislative requirements
Section 67(4) of the ECA provides the Authority with the legislative powers to address market failure, where it exists. Economic analysis combined with corhpet11ion law principles has refined the process of identifying and addressing market failures into three distinct steps:
Defining the market ln question Evaluating the effectiveness of competition within the defined market
Concluding whether any particular player has significant market power ln the market and il so, is this power detrimental to social welfare, 1.e, do monopoly rents exist.
The actions envisaged in the ECA include the Authority conducting sufficient research in Phase 1 of a market review to:
Determine the boundaries of a specific market (i.e. market definition) Evaluate the effectiveness of .competition within a specific market
The outcome of such research will lead to a determination as to whether any specific licensee(s) hold significant market power under the provisions of Section 67 and promulgated in terms of regulations under Section 67(4).
Regulations emanating from a market review will there1ore ·include: A definition of the relevant nlarket or market segment The methodology used to determine the effe_ctiveness of competition The identification of those licensees deemed to have significant market power
The pro-competitive measures applicable fo those llcensees to promote competition The schedule tor review and the provision ·for the monitoring of anticompetitive behaviour
703
3.2. Factors to be considered when defining a market
Defining a market is an exercise in establishing the boundary within Which the provlsion of particular products or services may be grouped.
A "market" is the interplay between consume: demand for and the supply of a specific product or service, including geographic availability. The exercise of defining a market involves identifying a particular product or service supplied by one or more suppliers and evaluating whether the san:ie or similar consumer-dsislred outcome may be achieved through the consumption of other products/servit:es, if available. This exercise implies that the original hypothesis is that the desired consumer outcome may only be achieved from the consumption of a particular product or service, \fit may be shown that the same/similar desired outcome may be achieved through the consumption of additional products/services, then the definition of, the market has to be expanded to include these additional products/services. The AuthOrlty may use the Hypothetical Monopolist Test, including the Small (but) Significant Non-transitory Increase in Price (SSNlP) test, as well as other alternatives, including the examination of 'practlcal lndicia', duri'ng the process of defining a market.
ln defining a market, the Authority must consider both barriers to entry (which may restrict the number of products/services on o1ter) as well as the dynamic characteristics of the market Jn question. These are expanded upon below:
Barriers to entry: o Structural: examples of structural barriers to entry are:
large sunk costs of network construction, which increase barriers to entry and exit and give significant competitive advantages to 'first movers' significant economies of scale, scope and density, which put newer 'smaller' entrants at a competitive disadvantage to the larger incumbent(s) or first-movers who have a lower per-unit cost base. The presence of very high fixed costs Can result in one firm having control over core facilftieS critical in the provision of access (sometimes referred to as a bottleneck or essential facility}1
;
demand-side network effects that reflect the desire by customers to be able to communicate to and receive communication from anyone (i.e, the value of any-to-any connectivi~).
' This aspect also tails u11der ~onslderatlon In the evaluation ol the effectiveness o1 competi\!011 as per Section 67(6)(b)(li)
704
7 ~
~~
Vertical lntegratlon.2 Many electronic communications markets
have at \east one vertically integrated operator (often one being a former statutory monopolist), Such a licensee's downstream
subsidiaries may compete with other llcensees but typically has
control over an essential input in the upstream market. Problems
can emerge when a vertically integrated operator uses its
market power in the upstream market to provide an unfair
compethive advantage to its downstream subsidiary, o Legal: the Authority deems legal barriers to entry to be those barriers in
place other than any potential barriers in place in terms of the EGA or
lCASA Act. This Includes any primary legislation as wel! as other
legislative requirements, such as municipal bf laws.
o Regulatory: The Authority deems regulatory barriers to be those
barriers to entry in place in terms of the EGA or the !CASA Act.
Dynamic character and functioning of the market issues to· be considered
when defining the market include:
o Demand-side substitution: demand-side substitution occurs when
consumers choose to switch products based On the products'
characteristics, price and/or intended use. The extent to which
consumers are able to choose different products/services to achieve
the same end outcome determines the scale and scope of the market to be determined. In effect, the greater ease the consumer faces in
switching from the use of one existing product to another ln order to
provide the same/similar service, the less the potential for a licensee to have control over the price charged to or the quality received by the
consumer. The objective of evaluating demand-side substitution is to establish whether the consumer has cholce of the use of different
products to achieve the same desired outcome. lf a choice of product exists, under demand-side analysis the scope of the market will have-to
be expanded. Challenges regarding demand-side substitutability:
Demand-side substttutab\lity may, conceptually, always be possible. The important feature is the exlent to which
the existence ol de_mand-Sld6 substitutability may constrain the market power of a licensee. If a consumer may change products easily"to achieve the same desired
outcome, then the supplying firm/s has an incentive to keep the price of a product low, i.e. to prevent consumer
switching and the ensuing loss of licensee-specific
~Thls is a key aspect 1or declaring a licensee to have significant market power as per'Sectlon 67(5) of the Act.
8
705
~
revenue. However, consumer switching may be constrained for a number of reasons3•
Product bundling. Bundling o! different services within
one offering to the consumer may mean that the overall
market consists of market segments within which the market power of licensees is to be evaluated
A case-by-case analysis is therefore warranted in determining the impact of demand-side substitutability on
the definition o1 a market. o Supply-side substitution: supply-side substitution occurs when a
change ln the market (e.g. an increase in the sales price of a product)
leads to an increase in the number of licensees who provide the same
product to the consumer. An increase in the supply of products provided by different licensees in the market aiming to satisfy the same
outcome, as per demand-side substitution, reduces the market power
of supplying firnis. The objective of evaluating supply-side substitution
is to establish whether a change in the price of a product would entice
a greater number of suppliers to enter the market in· question, thereby
enhancing consumer choice and reducing the market power ol a firm Challenges regarding supply-side substitution:
For supply-side substitution to impact on the market, such
substitution has to be both comparable to the existing product as well as available within a limited period of
tlme. Supply-side substitutabll!ty is therefore only an important element where its impact is equivalent to that of
demand-side substitution.
Timeframe: aspects such as investment costs and the
actual time it takes to enter and provide. services affect the impact of supply-side substitution on the market
power of a licensee. A case-by-case analysis is therefore warranted to
establish whether supply-side substitution is timely, likely and sulficient to have an impact on the definition of a
market.
"for exampl6, long-term "lock-in" contracts or the lack ot availability of an alternative supplier even though contracts are short-term.
706
3.3. The methodology used to evaluate the effectiveness of competition
Effective competition is a·state of being within a particular market where, at a point in
time, no one (or group thereof) licensee has significant market power.
Effective competition e_xists when: consumers have suttici.ent choice regarding who provides the services they seek, at reasonable prices sellers have access to buyers without justified restrictions imposed by e>;tern.al parties, Including competitors and legislatlon The price charged for a product or service is a result of the interplay between consumers and licensees, i.e. no one firm has price-se1ting power
Any variation in price in products or serV'lces is a result of differences in the cost of provision or characteristics inherent to the product, such as quality
Wh8re any one, or a combination, o1 the above is not met, a licensee may have
significant market power.
Section 67{6)(b) outlines the factors to be considered when evaluating the
effectiveness· of competition in a market. The guiding principle behind any evaluation is that the focus is torward-!ooking, i.e. the market may be deemed ineffectively competitive only if a licensee (or group) is deemed to have significant market power over a period of time Into the future. The Authority·will determine the
time period to be considered on a case-by-case basis.
3.3.1. Factors to be considered when evaluating effectiveness of competition
A number of factors are required to be considered when corning to a determination on the effectiveness ol competition. A brief discussion of some of these factors Is
provided below:
Assessment of relative market shares: Market shares provide an indication of the extent of market power a licensee may have in a partiCu'i"ar market. Market shares may be calculated by value or by. v~lume depending on the product or service in question. Although a ~lgh market share does not necessarily indicate whether a licensee enjoys significant market power, competition law in South Africa defines a fil1Tl as being dominant according to
the below scales: o it has at least 45% of that market; o it has at least 35%, but less than 45%, of that market, unless it can
show that it does not have market power; or o it has less than 35% of that market, but has market power.
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Actual and potential existence of competitors: a forward-looking assessment of the effectiveness of compeHtion wlthin a market is required to take into
account existing as well as potential competitors and the impact of an Increasing number oi players providing services in the same market on whether it is possible tor a licensee to have significant market power. In terms of actual and potential existence of competitors, the assessment will take due regard of al\ possible barriers to entry as well as the likelihood that entry will have an impact on the market powers of existing licensees. To this extent, new entrants to a. market represent a form at supply-side substitution.
The level, trends in concentration and history of collusion in the m·arket Concentration ratios indicate the degree to which specific firms Within a market may have significant market power. The most common measurement is the Hirschmann-Herlindahl Index {HH!). This method calculates the sum of the squares of actual competitors' market shares. The summation represents
'a concentration level for the relevant market Although the HHI index is commonly used, other methods may be applied from time to time. The history of collusion will be assessed by evaluating price movements of products
offered by competitors as well as making reference to any complaints lodged with and initiated by the Competition Commission of South Africa4
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The overall size of each of the market participants: the overall size of each market participant will determine the extent to which each participant is able to exercise market power. An example of this issue is where a firm has extensive economies of scope and scale.
Control of essential facilrties: Certain facilities required to facilitate the development of interoperable and interconnected networks require substantial investment to the extent that only a small number of licensees may be able to accomplish such investment. Whilst such investment is crucial in achieving Object 2b & c of the EGA, it may be possible for the investing tirm to foreclose firms tram entering any market reliant on the existence of a specific facility. A forward-looking assessment of a market will therefore consider the value or Importance of specific facilities in the provision of an end-user seNlce and the extent to which ownership of such a facility impacts on· the mark~t .power of a particular licensee.
Technological advantages or superiority .. · licensee-specific techno\oglcal advantage, or superiority, is often a case of increasing dynamic efficiency wlthin a licensee, thereby enhancing the end-user experience. Technological advantages may even 'exist" as a result of one licensee using more efficient business processes (ordering systems, consumer sUpport etc.). However, it is also possible for a licensee to leverage a specific technological advantage to enter into adjacent markets. Examples o1 such behaviour include bundling or tyiilg practices as we\\ as linked sales. Such practices may be deemed as harmful to competition. Given that new technologies can be adopted by all
• www.cornpcom.co.za 11
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market participants over time, concerns regarding the effectiveness of competition can only be related to those factors that are to impact on the level ot competition during the defined period of forward-looking assessment, i.e. three years. The degree of countervailing bargaining power, the existence of customers with a strong negotiating position may reduce the market power of a licensee. When purchasers of a.serv(ce are large an_d powertu1,· they can effectively halt an attempt by a licensee to increase prices, There are many factors to be considered in evaluating the degree of countervailing bargaining power, including: ·
o The proportion of a licensee's to ta! product purchased by a specific customer
o The portion of the costs for a service in relation to total customer expenditure
o Price and quality sensitivity o The availability of sufficient information for customers to make informed
decisions as we\I as face insignificant switching costs.
Easy or privileged access to capital markets and financial resource~:
Infrastructure construction requires substantial up-front cap~al costs which may only be recouped over the medium to long term. It is !lkely that only a small number of licensees will be able to access the requisite resources to
fund such endeavours. As such, access to capita\ markets and financial resources is naturally constrained by the costs of intrastructure construction. Concern as to whether a market may be Ineffectively competitive courtesy of access to capital markets is therefore constrained to evaluating whether all licensees participating in that market have equal potential access to capital and financial resources.
Dynamic characteristics of the market high levels of growth, innovation and product/service differentiation cumulat!vely indicate a market that is dynamically competitive as different licensees enter/exit offering different services at different prices within the same market. A market that exhibits little or no change ln the type of services available, limited growth and the lack of consumers being able to purchase differentiated components of a service (i.e. bundling or product tying Is prevalent) may 'set-Ye as indications that competition is ineffective.
Economies of scale and scope; economies· Of scale and scope arise when increasing production causes average costs to tall and where average costs for one product are lower as a result of it being produced jointly with another product by the same firm respectively. Both economies ot ·scale and scope may arise naturally out of technological or product innovation and therefore not pose any concern regarding the effectiveness of competition within a market. However, substantial economies oi scale and scope may act as a barrier to entry to specific markets and therefore increase the marl<.et power of a particular licensee. Economies of scale and scope are a concern when the
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minimum efficient scale of entry is large when compared to the total market as well as there being substantial tosses if exit were to be considered.
The nature and extent of vertical integration: Vertical integration exlsts where one licensee providing products/services ln one market is also present in a market at a higher or lower level of the value chain. Vertical integration, as for a~cess to capital markets and economies of scale and scope, may represent the most efficient outcome for the provision of services. However, vertical Integration may also promote dominance by restricting market entry where a licensee has control of upstream and/or downstream ma~kets and the potential to lever market power, thereby hampering the development of competition
Ease of entry into the market the threat Df new entry into a deflned market may pose as sufficient constraint on the market power of an existing licensee. However, such market entry represents a form of supply-side substitution.
, Excluding legal and regulatory barriers (assessed when deitining a market), the potential lor independent market entry is constrained by the costs of such entry. Barriers to independent marl<et entry may exist as a result of substantial sunk costs, existing market participants having exclusive
purchasing agreements with key input suppliers or whether the level of technological Innovation may impact on potential market entry. Ease of entry to a market must be timely, likely and sufficieiit in order to increase the level of competition in a market
3.4. A discussion on possible pro-competitive terms and conditions
A range of possible pro"competitive terms and conditions exist. The imposition of such obligations is intended to correct the specific identified market failure. Therefore not all possible pro-competitive conditions will be applied It a market review reveals a lack of effective competition.
The EGA lists a number of possible pro-competitive conditions, outlined in Section 67(7).
3.4.1. Transparency, non-discrimination and accounting separation
A transparency obligation may be Imposed on a tic~nsee deemed to have slgnilicant market power. A transparency obligation does not necessarily have any impact on the conduct of a licensee in a market but it assists in identifying conduct which will reduce the effectiveness of competition as well as ensure that parties wishing to purchase services from the deemed licensee are sufficiently informed of its internal practices.
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A transparency obligation therefore represents an effort to enhance countervailing bargaining power within a market. However, increased publlcly availabfe information on its own may not have any impact on the structure of the market Therefore the princlple of non-discrimination is often included ln a transparency obligation.
One objective of a non-discrimination obligation is to ensure that a licensee that selfsupplies specific inputs to its own operations does so at fair and reasonable prices. ln other words, if a licensee self-supplies an input at a different price to the price of the same input as sold to competitors, such a differential must be justified.
An obligation for functional accounting separation and the submission of regulated financial records (or RFR) to the Authority aims to further ensure that Internal transfer pricing between business units is transparent, with the objective of ensuring that cross-subsidization does not occur. The requirement for the submission ot such information may also form part of a price control remedy. The format and accounting meth'6dology is to be stipulated by the Authority.
3.4.2. Price controls
Price controls, be they in a wholesale or retail market, may be necessary where Ineffective competition ls found. The form of regulatory action would be determined on a case-by-case basis, including the relevant costing methodology to be applied, Price controls may take the form of a minimum price to be charged, a maximum or a combination of the two. Inherent in costing of the provision of a service, any price control intervention will have to consider the imp-3Ct of product bundling, predatory pricing and any other behaviour which may harm competition.
3.4.3. Controls on the type of services to be provided
Jn certain cases, a licensee with significant market power may be the only licensee with the abi\tty to ensure certain social objectives are achieved. This may mean that the Authority may impose the requirement to provide particular services, or conversely, to limit the provision. of specific services, Examples may include an obligation to broadcast certain content or to provide access points in under-seNiced areas.
3.4.4. Other remedies.
The Authority may Impose any other pro-competitive terms and conditions designed to address any identified market failure. This could include the requirement 1or func:tional separation.
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4. Information requirements to complete market reviews
The sharing o1 informatlon between the Authority and licensees is ol key importance. The Authority may require firm-specific Information in order to ensure that an evidence-based decision is made. Secondly, it ls also crucial that the Authority share the outcomes of its work with stakeholders to ensure that all evidence and views have been considered when decisions have been made,
Tables 1 and 2 contain a non-exhaustive list of the types of information the Authority may seek when defining a market and evaluating the effectiveness of competlti~n
In addition, benchmarking data, evidence of prior anti-competitive behaviour and any other ~dditlonal information may be used to support the Authority's decision-making process.
Table 1: Possible data requirement for defining the market
Factors to be considered Criteria Tvoe ot information Non-transitory barriers to entrv
Structural Network infrastructure Fixed Investment trends level or self-hrovisfonlnn
legal O'Jalitatfve review of legislation that may hamper market entrv
Regulatory Qualitative review of existing regulatory body that mav harnner the develooment of oornoetltion
Dynamic character and functionino of the market
Subst\tutabillly Product/service characteristics '" "'' PI customer, e.g. residential versus non-residential . Churn rates SWitching costs
I Price transparency on the supply and demand side Prices and volumes (!or bundled and unbundled oroducts1 · ·
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Table 2: Possible data requirements to evaluate the effectiveness of competition
Factors to be considered Assessment of market shares, the level and trends in concentration, overall sire of market participants, economies of scale and scope
Control ot essential facilities, nature and extent of vertical Integration and technical superfority
Actual· and potential existence o! competltors
Tvoe o1 informa~on Tumoverlrevenue Volume o( traffic per service Number ol end-users Number of "\ransactions" (e.g. calls, cflal-up or connection sessions etc) Ne\\'ilork capacity utilisation Bundling of services (Including sales volumes and utilisation]
Nelwork Infrastructure Investment and operational expenditure Control and ownership of infrastructure Relationship between companies Qualitative information regarding nroducVservice characteristics Number and dates of new markel entrv and exit
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Degree of countervailing bargaining power and dynamic characteristics ol the market
Specific customer (or category) share I o! total turnover Price trends and consumer switching I data
Easy or privileged access to capital marKets/resources and the ease of entry into the mrukot
• Price transparency of available I products Rate ot product differentiation/ new oroduct introduction Qualitative information Trends In market shares Market arowth
4.1. Powers of the Authority to request Information
The Authority may base its decisions on publicly available information, information obtained through specific requests to licensees or a combination of the two. It is in the interest of all parties to co-operate with the Authority in order to ensure that sound regulatory decisions are made.
The Authority has the legislative powers to require licensees to submit information on request, as outlined in Section 4(3)(g) of the !CASA Act ·01 '2000, which states that the Authority: ·
"may, by notice in writing, direct the holder of a licence in terms of the underlying statutes to produce or furnish to the Authority, at a time and place specified in the notice, any documents and information specified in such notice and relating to any matter in respect of which a duty or obligation is imposed on such licensee by this Act or the underlying statutes"
4.2. Timeframes and Collection methods of !nformatlon
The accuracy of defining and analysing markets depends to a large degree on the timeiy provision of market information as well as the accuracy and reliabllity of the information provided.
The Authority will from time to time release questionnaires ln order to make up-todate evidence-based decisions. Licensees are typically required to provide such information 'Within 30 business days of the request for information.
4.3. Information meeti_ngs with Licensees
The Authority is com1,1itted to ensuring a co-operative and continuous dialogue with licensees' appointed contact persons regardlng the collection of market information.
Such' a dialogue will Initially be by letter, with further meetings and fora on a licensee and stakeholder basis arranged where deemed necessary.
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Press statement on release of the "Guideline tor conducting market reviews"
8 March 2010
Good morning ladies and gentlemen. I am Councillor Thabo Makhakhe and it is my honour to address you a\\ today.
\ welcome you a\I, licensees, members of the media, members of the public and my \CASA co!!eagues who are here this morning.
The purpose of this briefing session !s to provide an outline of how the A~thority intends to implement the provisions of Chapter 1 o of the Electronic Communications Act, No 36 of 2005. The chapter requires \CASA to implement pro-competitive terms and conditions such as prlce controls on operators found to possess significant market power in markets characterised by ineffective competition.
I wi\! take a few questions at the end of this statement.
Setting the Scene
The Electronic Communications Act is a component of the South African government's policy to enhance both dynamic and allocative efficiency in the management of communications resources within the South African economy. The Act makes specific provision for ex ante pro-competitive regulation where market failure exists and competition is deemed to be ineffective.
ln 2006 the Authority initiated a review of the Call Termination Market that culminated in a Findings document released at the end of 2007.
The numerous written as well as oral submissions received by the Authority on the discussion document on the Call Termination Market and on draft regulations published in 2008 brought to bear the need for a guideline outlining the Authority's approach in implementing Chapter 1 o of the Act. The comments in these submissions ranged from different
legal interpretations to detailed comments on how best to evaluate indicators of the effectiveness of competition, such as countervailing bargaining power and the economies of scale and scope.
Based on a review of the submissions made by stakeholders, engagement with the Competition Commission and a review of international best-practice, the Authority has developed a guldeline to provide clarity on how the Authority will conduct market reviews. .
This guideline represents a roadmap on the way forward in handling the market reviews process.
The guideline
The aim of the guideline .is not to prescribe any action but to outline the process the Authority plans to follow in determining the need for regulation with a view to correct market failure where it exists. The guideline includes the following:
the public consultation process to be followed
an outline ot the aspects to be considered when Identifying the need for regulation
an indication of the type of information which the Authority might will require when conducting investigations into the effectiveness oi competition in the ICT sector.
In particular, the Authority wishes to inform all stakeholders that regulations defining relevant markets, assessing the effectiveness if competition in those markets, identifying operators with significant market power and imposing pro-competitiv€ terms and conditions will be developed on a market-by-market basis as an outcome of a market review.
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Conclusion
To licensees, l ask that you take note of Section 4 (Information needs) of the guide and start preparing your data systems such that we can work together to efficiently achieve the mandate of the ECA.
In conclusion, we wish to thank all those who provided comment during the consultation phase of this complicated process.
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Independent. Communications Authority of South Africa Pinmifl Farm, 164 Katherine Street, Sandton
Private Bag X10002, Sandton, 2146
Statement to support the release of wholesale call termination regulations -Thursday 15 April 2010
1. Introduction
Good morning ladies and gentlemen and welcome to ICASA this morning.
I am Thabo Makhakhe. I am now conveying to you a brief outline of the regulatory history and principles in respect of call termination before discussing· ICASA's proposals regarding the market for call termination. These proposals will be released formally in the government gazette tomorrow, 161h April 2010.
On conclusion ! will take a few questions
2. Interconnection versus call termination
Interconnection regulations There has been much talk about interconnection in the press recently and I would like to clear the waters in respect of ICASA's responsibilities regarding interconnection versus call termination.
The Electronic Communications Act (ECA) has a key objective of ensuring fair and non-discriminatory access to interoperable networks. Access to networks i.e. interconnection, is an obligation which all licensees bear under Section 37(1) of the ECA. To support this obligation ICASA is mandated to develop and release regulations that facilitate the conclusion of interconnection agreements by stipulating certain minimum agreement principles. These regulations were released last week in the Government
Gazette and are not designed to address matters of pricing at all. . i)!?\2' r
? Mashlle (Chairperson), NA Baty(, TLV Makhakhe, R Nkuna, BB Ntombela, FK Sibanda, Dr MM Soc!kwa, WF stucke, Prof JCWvan Rooyen SC (Councillors), BK Mot\ana (CEO)
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Although pncmg is indeed a component of access, pricing matters,
particularly price controls may only be implemented under Chapter 10 of the
EGA.
Call termiiiation and conducting market reviews
Voice call termination is the service one network offers another to carry voice
traffic to its end-users. It is the charge for this service that has been the subject of much media attention, where it has been reported that the current charge is a constraint to effective competition as well as a driver of high retail
prices in South Africa.
The debate around call termination fees started in 2007, with !CASA releasing
a discussion document and subsequently a findings document on the
definition of the market for call termination services.
ICASA concluded by defining the market as call termination on each
licensee's network in South Africa.
In the findings document !CASA committed to providing guidance to
stakeholders on how Section 67, the section of the EGA that addresses
competition matters, would be addressed.
In 2008 !CASA released a range of regulations specific to each segment of
Section 67(4) for public comment. The commentary received .raised numerous issues. Among them was the reality that markets are specific and
therefore begging the question as to whether "framework" regulations were
necessary.
Based on the submissions received, a holistic review of the ECA as wel! as
the process for conducting a market review, ICASA concluded that
regulations addressing competition matters should _only be released on a market by market basis. Further to this, ICASA is of the view that the ECA, from Sections 67(5) onwards more than adequatelf~xplains what is required
r-Jh ~
to be included in a market review.
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Nevertheless, in the interests of regulatory certainty, ICASA chose to release
a detailed guideline on how market reviews would be conducted and how specific aspects would be looked at. This guideline was released on the gth of
March 2010.
The approach taken by ICASA is not only consistent with ex ante regulatory
regimes in other jurisdictions but is in line with the Competition Act to ensure
that no inconsistencies occur.
3. Outcomes of the call termination m·arket review
ICASA's view is that the market definition as stated in the 2007 Findings document requires no change despite the introduction of the new licensing
regime: networks are still networks and therefore nothing has changed.
The definition ICASA proposes for the market is the following: Wholesale call termination on an electronic communication network
operating in South Africa - both Electronic Communications Services and Electronic Communications Network Services.
This definition is consistent in other jurisdictions which follow a market review
process including:
•Various European Union nations
•Uganda
•Tanzania
•Kenya
•New Zealand
In October 2009 ICASA took a further step by releasing a request for
information in order to evaluate the effectiveness of competition in the call
termination market. The questionnaire sought information on market shares,
network coverage, revenues and other factors deemed relevant to evaluati~~ the effectiveness of competition. . ~
ICASA's view is that the demand for call termination is a derived· demand based on consumers' demand for communication. However, access to these
consumers is controlled by the licensee that provides voice coinmunication services to the end-user. Therefore ca\I termination is a bottleneck service,
721 Page4
and as such each licensee controls 100 per cent of the market for call termination to its subscribers. Each licensee therefore has significant market power.
However, although each licensee has significant market power, it is the ability of each licensee to use this market power in the retail market that determines whether market failures exist. This begs the questions: what is the impact of
a licensee raising the price for voice call termination on its market on the
competitiveness of the downstream retail market?
As stated above, call termination is a bottleneck service. So one has to further ask the question: can a network increase its price without facing detrimental effects?, Whether such conduct is possible is defined by network effects: the bigger your network the larger the customer base and therefore the greater demand for termination on your network.
The charge for call termination may have remained stagnant from 2005 onwards. But one cannot ignore the Impact of the substantial increase in call termination prices, specifically for mobile call termination, in the period July 2000 to July 2002, where peak mobile call termination charges increased from 50 cents to R 1.23 over a period of 17 months. Pricing alone is not the only concern. A delay in facilitating access to your network also creates competition concerns. This is known as the refusal to
deal or denial of access. !CASA is aware that in some cases it took close to a year to complete interconnection negotiations. This is where interconnection regulations come in.
ICASA's view is that the market for call termination is ineffectively competitive, although there are mechanisms through which larger service providers may exert some countervailing buying power (CSP) on smaller service providers. The use of CSP has the potential to limit the extent to which smaller service providers are able to price wholesale call termination at excessive levels (significantly above cost). !CASA has identified the following general market failures in the provision of call· termination services:
•A lack of sufficient access to networks
•A lack of transparency •Discrimination concerns
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•Inefficient pricing
!CASA is obliged to ensure that remedies are proportionate to the scale of the market failure. In this regard different remedies may be applicable to different types of licensees.
In determining the remedies ICASA recognises that different licensees provide different services whilst providing a call termination service. lCASA
has identified two types of service: •Mobile services: services via wireless technology to a mobile ;location •Fixed services: services offered to a fixed location, including VOiP
services
FurtherO)ore, although each licensee has a monopoly over calls destined for its network, certain networks are better placed to leverage off this position. Therefore !CASA proposes two categories of licensees with significant market power:
•An SMP licensee: all licensees offering call termination
•An Established SMP licensee: a licensee that has an established presence In the market. Established SMP licensees are:
o Vodacom (Ply) Ltd. o MTN (Pty) Ltd. o Cell C (Ply) Ltd. o Telkom (Pty) Ltd
4. Proposed remedies
I now discuss the proposed remedies applicable to each Identified market failure
Access, non-discrimination and transparency ICASA proposes that there be a two-tier regulatory approach to addressing these matters, based on the above categorisation of licensees, where:
•SMP lfcensees are required to comply with the recently released · Interconnection Regulations
•Established SMP licensees are required to comply with a more intrusi~~ regulatory obligation through the provision of: \J w
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o A reference interconnection offer to fast-track interconnection requests. With a Reference Interconnection Offer (RIO) in place, ICASA believes that interconnection requests could be completed within 15 days
a Cost accounting and accounting separation: ICASA proposes to impose regulatory financial reporting formats on Telkom, Vodacom, MTN and Cell C to provide transparency to !CASA over issues such as cross-subsidization. The reporting format will be similar to that of the old CONCAM regulations and will be released for public comment during the course of this year.
•All licensees are required to provide relevant market data on a bi-annual basis so that ICASA is enabled to monitor trends in the market.
Inefficient pricing As stated earlier, the very characteristic of the call termination market means that there is very little incentive to compete on termination rates and that larger netwo'rks are in a position to be price-setters. !CASA therefore proposes that cost-orientation be introduced in the provision of call termination services. The particular nature of the cost-orientation remedy is based on the characteristlcs of the particular licensees as discussed earlier.
Established SMP licensees For those licensees with an established presence in the market !CASA proposes the imposition of a single set termination rate, removing the distinction between peak and off-peak termination rates. ICASA did consider a blended rate but believes that a single set rate is more beneficial in terms of tariff transparency as well as a lighter regulatory burden. !CASA also believes that a glide-path from the current rates to a cost-oriented rate is necessary to secure and support continuous investment in the JCT sector in South Africa. !CASA therefore proposes a 3-year glide-path for both mobile and fixed service licensees.
•Mobile termination rates are proposed to be reduced to R 0.65 from July 2010 and further reduced to R 0.40 from July 2012.
•Fixed termination rates are proposed to be reduced to R 0.15 from Jtffit 2010 and further.reduced to R 0.10 from July 2012. ~
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Mobile Call termjnation Fixed call termination rates rates
From July R 0.65 R0.15 2010
From July R0.50 R0.12 2011
From July R 0.40 R 0.10 2012
These figures are based on information at ICASA's disposal, particularly submissions made by licensees under the old CONCAM regulations.
AU other licensees All other licensees will be required to comply with a cost-oriented obligation by determining termination rates that are "fair and reasonable." !CASA expects that these licensees will charge symmetrical rates with the established SMP licensees. This means the following:
•If a licensee provides termination to a fixed location, it will be expected to offer termination rates as set for Telkom
•If a licensee provides termination to a mobile location, it will be expected to offer termination rates as set for MTN, Vodacom arid Cell C
Such licensees are expected to commercial!y negotiate termination rates with interconnecting parties, But they are given the right to refer a dispute to !CASA if a dispute over pricing occurs. !CASA will review the information submitted to it; ensuring that the relevant information of costs per network element ·are provided, and then make a determination.
5. Conclusion
I now wish to share with you ICASA's expectations of the outcome of a reduction in termination rates. A key aspect of regulating termination rates is the issue of pass-through - to what extent will end-users benefit? ~
!CASA has two expectations in this regard. Firstly, we expect the fixed ti\\ mobile retail call rates to reduce as the mobile termination rates are reduc~
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We have already benefited from a 100% pass-through of the recent reduction in mobile call termination rates for fixed line subscribers and we would encourage this practice to continue.
Secondly we expect some measure of pass-through to a reduction in retail
prices of calls between mobile networks. However, given the nature of
product bundling in the provision of retail mobile services we expect that price
reductions will be subject to dynamic competition. ICASA's view is that a lack of effective pass-through to retail prices indicates that there may be a lack of effective competition in the retail market for mobile
services.
!CASA will monitor price movements in the retail market for mobile services
vigilantly over the coming months to evaluate whether further action is
required.
Jn conclusion, I wish to inform everyone here 1 as 1 now do, that written
submissions on the draft regulations and explanatory note which will be released tomorrow in the government gazette, are due no later than the znd of
June, with public hearings planned for the 9th to the 11th of June, 2010.
1 thank everyone for their interest in this matter over the last few months and
look forward to a robust and pro-active engagement during this crucial public
process.
I will now take a few questions bearing in mind that you still have the opportunity to scrutinise the draft regulations and the supporting explanatory
note.
.!. ;~t
IC '~:·.SA . . .
independent Communications Authority of South Africa Pinmi!I Faim, 164 Katherine Street, Sandton
Private Bag X10002, Sandton, 2146
MEDIA RELEASE
THE AUTHORITY'S GLIDE PATH DEVELOPED fN TERMS OF THE CALL TERMINATION
REGULATIONS REMAIN IN FORCE
27 February2013
Johannesburg - The Independent Communications Authority of South Africa would like to clarify to a,11 stakeholders and the media that the glide path for termination rates will continue as provided for in the Call Termination Regulations; and that the mobile termination rate will drop to R 0.40 on 01 March 2013 as planned.
'When publishing the Wholesale Voice Call Termination Regulations in 2010, the Authority set out the three-year glide path and its expectations that over time, a more dynamic pricing environment including lower retail rates, would develop, ultimately leading to the benefit of the consumer.
Since the introduction of the three-year glide path is contained in the Regulations, any changes to such a regulatory matter would require a public process that will afford all relevant stakeholders an opportunity to make their comments. Further, any changes would need to be informed by a comprehensive study or market review.
The Authority will has noted the concerns raised by various parties and will be initiating a review of the call termination market and look into the matter of price transparency on an urgent basis.
The Authority acknowledges that some reductions in the retail price _have taken place, however the Authority is concerned that there has been ·an insufficient increase in competition over the past few years.
The Authority's goal is to promote effective competition and is of the view that the cause or barrier to a lack of effective competition is the high termination rate. High termination rates are a barrier to reduced off-net call prices and therefore· prevent effective retail price competition.
To this end, the Authority sees no reason why mobile termination rates should not be in the region of R 0.15 to R 0.25' based on benchmarks set by South Africa's peers in Africa and the rest of the world. It is also conceivable that termination rates should tend towards zero over
· time. The upcoming market review will, inter olia, address the above issues. ~
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The symptoms of too high a termination rate
High termination rates prevent small and new entrants from being able to effectively compete and allow larger players to offer on·net voice prices that are lower than off·net voice prices a smaller player n1ay charge its customers. This may represent margin squeeze and predatory pricing.
The Authority is concerned that the pricing of an on·net voice call may be below the termination rate, an indication that operators are pricing on-net cans at below the true cost of a call, or that the current termination rates are still considerably too high.
Other jurisdictions have addressed such behaviour through regulations imposing flat rates across netvvorks, a price floor for a product and/or anti-competitive penalties on operators found to be pricing in this manner.
The Authority intends to urgently review the structure of pricing, including transparency in the market and will examine the necessity for this form of intervention on an urgent basis. The Authority ;mn soon unveil its plan of action to address all these matters.
A11 media enquiries can be directed to:
Paseka Maleka
Tel: 011566 3455
Mob: 079 509 0702
Email: [email protected]
2 I Pc: g"'
To
Via
From
Ref
Date
Subject
1. PURPOSE
Independent Communications Authority of South Africa
Plnmill Farm, 164 Katherine Street, Sandton
Private Bag X10002, Sandton, 2146
SUBMISSION TO COUNCIL
Council
Nomvuyiso Batyi
Councillor
Pieter Grootes
William Stucke
Councillor
GM: Markets and Competition DivisiOn
27/2/3/3
15 May2013
Notice of Intention to Implement a Cost to Communicate Programme
1.1. The purpose of this memo is to seek Council approval for the release of:
1.1.1. The Notice of!ntent to implement a Cost to Communicate programme
1.1.2. The release of the Ca!I Termination Review Qu'estionnaire
2. BACKGROONO
2.1. ln response to concerns from industry and stakeholders regarding South Africa's high cost to
communicate, the Authority has embarked on an initiative called the "Cost to Communicate
Programme."
2.2. The programme currently consists of five initiatives, namely:
2.2.1. JCT Indicators
2.2.2. Call Termination Regulatory Review
2.2.3. Local Loop Unbundling Regulations
2.2.4. Broadcastl11g Wholesale Transmission serJices
2.2.5. Bro~dband ECS/ECNS Value Chain Analysis
2.3. The programme seeks to iichieve the following goals:
2.3.1. Stimulate public debate around the cost to communicate in South Africa
729
2.3.2. Establish regulatory needs to address concerns regarding the cost to communicate in South
Africa.
2.3.3. Stimulate enhanced competition In the telecornmunlcatlons sector which should result in:
(al-, Increased consumer choice
{b) Enhanced ab\llty to switch suppliers
(cl Increased transparency in product pricing offers (which currently are regarded as
being generally opaque)
(d) Fair and reasonable wholesale and retail prices
3. RECOMMENDATION
3.1 Such proactive notification ensures a higher degree of responsiveness to the Authority's
requests for information under the various components of the Cost to Communicate
programme.
3. 2 The Markets and Competition Programme recommends that Council approves the gazetting
of the notice of Intention to implement a cost to communicate programme in the
Government Gazette.
Prepared by:
c!Ulk'f Christian Mhlanga
Senior Manager: Markets & Competition
3[?oge
730
Approved by:
~'.~\£ Pleter Grdotes
General Manager: ~arkets and Competition
D•to ')_Lt/ d; /3
Recommended by:
J!4f' William Stucke
Councillor Councillor
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Establish regulatory needs to address concerns regarding the cost to communicate in South Africa.
Stimulate enhanced competition in the telecommunications sector
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Publish Findings Document
Publish Final Regulations
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1 November 2013
14 April 2014
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• High termination rates:
- Represent a price floor for the retail price of a new entrant
• Solution:
- Establish cost base for call termination
- Introduce regulated glide-path towards the cost base11
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Pre 2011 R 1.25 C---·
voluntary reduction R 0.89 -29%
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March 2013 R 0.40 -29% -68% 12
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One-on-One engagement with Licensees From 1 to 12 July 2013
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Publication of final call termination 25 October 2013
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South Africa needs to know: Investors need to know: - Number of Postal outlets - Share Price movements
-Traffic Flows - How much money has
- Number of broadcasting been invested
channels (TV & Radio) - Levels of profitability
· - No. of Subscribers - Number of people
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- Services Available II
- What infrastructure is
- Where they are available available
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• Licensees are required to use the online data
. portal available on the ICASA website
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interconnected electronic networks"
~ Fulfilment of provisions of the ECA Chapter 8: Facilities Leasing Regulations
- Enable effective and efficient utilisation of local loop infrastructure
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o Innovative services o Efficient utilisation of infrastructure o Benefits to both access seekers and access providers
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• SABC & eTV must face cost-oriented prices
• Authority gazetted the Broadcasting Wholesale Transmission Services Findings Document today
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Requests for Information
• Increased one-on-one engagement between the Authority & . Industry
Stakeholders • Regular updates
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Retail Tariff Transparency - Local and Roaming
- Next six months
• Local Content Review - Ongoing
• Premium Content Review - 2014-2015 Financial Year
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NB7§6 MOBILE Tf;LEPHONE NETWORJ<S (Pl't') /..TD Head Office: 21614111 Ave fa/rla11d 2195 P1il'ale Bag9S55 Cres!a 2118 Sou/h Afrlr;a Tai +27119123000 Fax +2711912 3001 !1flo:/!v.<wvu11(n_cp w
05 July 2013
Chrlstlan Mhlanga
Senior Manager: Marl<ets & Competition
!CASA
Pinrni\I Farm
164 Katherine Street
Sandton
Via EiTiail
cc Via Email
Dear Sirs,
cmhlanga@icasa,org.;za
Pieter Grootes ~General Manager: Markets and Competition
RE: COST To COMMUNICATE PROGRAMME- CALL TERMINATION
1. We refer to the Authority's Cost to Communicate Programme as published on 4 June
2013 ("the Cost to Communloate Progra1nme") and more particularly, the Call
Termination Market Review Questionnaire ("the Questiorinalre''.) and tile· meeting he!"d
with the Authority on 27 June 2013.
2. MTN is concerned that the \nfonnation required by the Questionnaire exceeds the
scope of the regulated process as included in the Ca\l Termination Regulations 2010.
We set out below the reasons for our concerns.
D1rec-fors RS DE1ba11gwa (Clw1m1an), Z Bulbulla (CEO)', R Gas/Jn! NWC Molope, PO Normlln NI P-ttlel S fl:ll11e, !<W P1i:maar Company Score/My: MMl Molwlm 'Cxaoulive
Ren No. 19S3I001436!07
Vat Reg, No. 4630140434
[\ fu ~ff
757
2
The legal framework fort he Quest/onnafre
3. The Cost to Communicate Programme gives "farmal notice of the review of the Ca!\
Termlnatlon Regu!ations of 10 October 2010", The Cost to Communicate Programme
goes on to state that "!n carrying out the review, the Authority will limit its scope to
section 67(8) of the EGA~ (paragraph 6, 1.2.1).
4. Section 67(8) of the EGA provides that, where the Authority undertakes a review of the
pro-competitive conditions Imposed upon a Hcensee under this subsection, it m.ust
u(ij review the market determinations made on the basis of earlier analysis; and
(ii) decide whether to modify the pro-competitive conditions set by reference to
a market determfnaUon''.
5. It is apparent from section 67(8) that any review must be limited to the market in which
the pro-competitive conditions apply.
6. Paragraph 6. 1.2..2 of the Cost to Communicate Programme makes it plain that the
review "will not consider revisions of . . the market defin!tions , , . determinations as
these will not have changed".
7. The Questionnaire states in paragraph 1.3 states that the objective of the
Questionnaire is to assist the Authority with:
i) assessing the level of competitiveness in the relevant market, and
Ii) determining the effect of the Ca!I Termination Re.gulations:
The "relevant markef' ls the market identified in the Call Termination Regulations.
B. Regulation 8 of the Call Termination Regulations 2010 ("Schedule for Review of
Markets~) Is to the same affect. 1t provides as follows:
''The Authority will revrew the wholesale voice call termination markets to which these regulations apply, as welf as the effectiveness of competttlon
and the application of pro¥competitfve measures in those markets after a
minimum period of three (3) years from the publication of these regufalions".
(Our emphasis)
758
3
9. The Questionnaire was sent to MTN under cover of a letter from the Authority dated 1 O
June 2013. The letter states thst the Questionnaire seeks to:
"(a) co/feet information from licensees as to the status of the market since
implementation of the glide path;
'(b), assess the necesst1y for any further regulation of wholesale vo1Ce call
termination rates in South Africa;
(c) if necessary, proceed with the development of further regulations as outlined on page 10 of [the Cost to Communicate Programme] paragraph
6, 1.2.1"(our emphasis).
Paragraphs {a) and (b) are clearly limited to the market for wholesale voice call
termination. We respectfully. submit that paragraph (c) makes no sense, since
paragraph 6.1.2.1 of the Cost to Communicate Programme states that the Authority wlll
limit the scope of the review to secb'on 67(8) of the ECA
10. Jn the light of what is set out above, we submit that the Questionnatre may only be
used for the purpose of a review of the conditions Imposed by the Ca\I. Termination
Regulations. It follows that the scope of the Questlohni:llre and the Information
requested must be limited to the markets that haVe aready been defined in the Call
Termination Regulation, namely:
Market 1: the market for wholesale voice oal! termination services to a mobile location
on the network of each licensee who offers such a service within the Republlc; _ .. «.,c-
Mark~[ 2: the market for wholesale voice call termination services to a fl:Xed location on ;;.:::._,
the network of each licensee who offers such a service within the Republic
759
4
The scope of the information requested in the Questionnaire
11. The data requested In terms of the Questionnaire travels far beyond the markets
Identified in the Call Termination Regulations. The Authority has included requests for
data which have nothing to do with the call termination market and instead address
several non-related issues or data which are not the focus of the cal! termination
enquiry. This is the case in respect of the following requests for information ln the
Questionnaire:
the number of base stations of each operator, broken down by technology;
traffic and subscriber numbers split in terms of contract types (prepaid, vs
contract);
'outgoing call traffic data, ln particular, ca!ts to Voice mail or lnternatlonal
destinations, transit traffic;
SMS traffic and revenues;
ARPUs and retail revenues information;
Retail promotions statistics;
Data Volumes;
\T Investment !eve!s;
Number of Tabl~ts on the Network:
Spend by user by geography;
CSTs In op eratlon;
National Roaming revenues and outpayments;
lnternatlonal Roaming visitors;
Handset costs and subsidies;
12. The same concern applies to the "fixedn data request withln the Questionnaire.
13, These data requests suggest the Authority intends to investigate non-related markets
rather than focusing on the analysis of the voice call termination market as is required
in terms the Call Termination Regulations read with section 67(8) of the EGA. If the
intention of the Authority Is to define new markets for analysis, then this must be done
in accordance with Chapter 10 of EGA and, and in particu!aC~8ctlon 67{4) thereof.
This section sets out a particular pfocess and methodoiog~:;):ir doing so. We
760
5
respectfully submit that it is not competent for the Authority to short-c!rcuit Such a
process.
14. MTN is concerned that the Authority seeks to propose ex ante Regulation on markets
based on data col\ected under the guise of a call termination market review. lf the
Author!ty wishes to conduct a market review with respect to a market other than voice
cal! termination, which taking Into account the data requested seems to be a retail
pricing enquiry, then it is not entitled to do so under the guise of the Questionnalre.
15. Further and in any event, Regulation 8 of the Call Termination Regulations makes no
mention of determining "the effect of the Call Termination Regulations", which is stated
to be an objective of the Questlonnaire.
Conclusion
16. We accordingly submit that the data requested Jn the Que.stionnaire ls far too broad !n
terms of the type of information and the volume of data that is being requested relative
to its stated objective and the \awful parameters drawn by section 67(8) of the EGA
read with Regulation 8 of the Carl Termination Regulations. MTN submits that the
Authority is only entitled to request data that ls relevant to voice call termlnat!on. MTN
therefore proposes the following:
a. That MTN provides only the information that is directly relevant to a review of
the voice call terminatlon market, and more particularly the voice minutes
(incoming and outgoing), Interconnection revenue and out payi:nents, delails
of existing Interconnection agreements.
b. The Authority finalise the Accountlng Separation and Cost Accounting
Regulation as is required in tenns of Regulation ?-of the Call Termination
Regulation, which should outline a costing methodology that should be used
for the calculation of voice termination rates.
761
6
17. We suggest that a meeting be held to discuss this further, We hotd ourselves ava!lable
to attend such a meeting in the course of next week at a time convenient to the
Authority.
18. We look forward to your response.
19. All of MTN's rights remain strictly reserved.
Yours faithfu!ly,
GRAH M DE VRIES
GEN RAL MANAGER: REGULATORY AFFAIRS
MTN{PTY)LTD
. . lndepend&nt Communications Authorily of South Africa
Plnrr,lll Farn1, 164 l<:::therine Street, Sandton Private Bag X10002, SandtOn, 2146
MEDIA RELEASE
I CASA ISSUES REVISED TIMELINES FOR SUBMISSION OF INFORMATION IN REGARD TO TBE COST TO COMMUNICATE PROGRAMME
17JULY2013
Johannesburg - The Independent Communications Authority of South Africa recently informed all stakeholders and the media of its Cost to Communicate Programme that outlines all the projects that ICASA is currently undertaking to address the concerns raised by various parties indu,ding government about the high cost of communication in South Africa.
ICASA has since received a number of requests for extended timelines, in particular the Broadband Value Chain Study and Call Termination Market Review. The Authority has reviewed the requests and grants an extension to all licensees as follows;
1. Broadband Value Chain Study - 29 July 2013 2. Call Termination Market Review- 02 August 2013
At this stage, the Authority foresees no change in the deliverable timelines of these projects as presented on 07 June 2013.
ICASA has also amended the questionnaire on the Call Termination Market Review as follows:
a. Information relating to SMS (Section B: 2.3), data (Section B: 4.6) and international roaming (Section E: 1. 2] are removed from the questionnaire.
b. Licensees are not obliged to complete Roaming Ag::e~ments (Section E: 1.2) of the questionnaire.
c. Licensees are also not obliged to complete CST Traffic and Outpayment (Section D: 2 &
3) of the questionnaire.
On the other hand, ICASA indicated that it would publish draft Local Loop Unbundling Regulations on the 16th of July 2013. The Authority will inform an stakeholders about the future publication date for these regulations in the next week since the conclusion of the drafting of these reg~!ations.is taking longer than anticipated.
Dr SS Mncube{Chalrperson), NA Baty\, WH Currre, JM L.ebooa, MRMoh\aloga, M Ndhlovu, KGS Pil!ay Dr. MM Socikwa, WF Stucke (Councillors), TTC Dlamin! (CEO)
763 Page 2
Any enquiries in relation to the revised timelfnes should be directed to Christian, Mhlanga on (011) 566 3637 or [email protected] and Pumela Cokie on (011) 566 3693 [email protected]
For all media enquiries please contact:
Paseka Maleka 011 566 3455 079 509 0702
Ends ...
764
821
22 November 2013
Dr Stephen Mncube Chairperson Independent Communications Authority of South Africa Private Bag Xl0002 SAND TON 2146
By email: [email protected]
Copy: Pieter Grootes Christian Mh!anga
vodacom
RE: VODACOM SUBMISSION ON DRAFT CALL TERMINATION REGULATIONS
Dear Dr Mncube.
Vodacom would like express its gratitude to the Authority for the meeting that took place on 07 November 2013, where the key areas of impact and concern with regard to the proposed Call Termination Regulations were discussed extensively.
Following on that meeting and your request for written submissions, we are attaching Vodacom's submission in response to \CASA's notice of intention to prescribe Call Termination Regu\atlons ("draft Regulations") pursuant to sectlon 67(4) read with section 67(8) of the Electronic Communications Act published in
Government Gazette No. 36919 on 11October2013 (''the Notice').
Vodacom records its intention to partlcipate ln the public hearfngs or further consultative process which the Authority may unde.rtake. in this regard. we: look forward to receiving confirmation thereof in due course.
Yours silcerely '51 ~/}~ N kate o Nyo ka Chief Officer: Legal and Regulatory
Vodacom (pty) l.td Vodaccm Corp~te Palk 082 Vodaeom Boulevard. Mldrand, 16BS Private Bag )';g904, S""dt~m. 2146
vodaeom.oo.ui
Phooa ~27 (0)1165~ 5000
965
EN
question of how these financial transfers are distributed across operators in-a way that best promotes econo1nic efficiency to the benefit of consumers.
It has been further indicated in recent economic literature37 that i~ the presence of call externalities mobile networks have strong tncentives to implement on-net/off-net price differentials due to: (i) high mobile-to-mobile termination charges which exceed marginal costs; and (ii) their strategic incentives to reduce the number of calls that subscribers on rival networks receive, reducing the attractiveness of rival networks and hence their ability to compete. This theory suggests that mobile call termination charges above marginal costs can lead to permanent net payments by smaller networks and, since off-net prices are set above costs, also imp lies that smaller networks receive relatively fewer calls. According to some of this literature, tennination charges which are above the marginal costs of terminatio~ result in strategically-induced network effects which may be detrimental to smaller networks.
However, for the purposes of this Recommendation, it should be noted that ail of the incremental (avoidable) service-specific fixed and variable costs (as the fixed costs are assumed to become variable over the long run) of providing the wholesale .t'Cnnination service to third parties may be recovered via the regulated wholesale termination charge. Even if the Recommendation does not propose to set termination rates at the level of marginal cost or below (as suggested by.some recent economic literature), applying a pure LRIC approach should in any case facilitate a more efficient distribution- of these financial transfers between operators and thereby contribute to a level playing field between all fixed and mobile operators.
4.2. Common principles for symmetry/asymmetry of termination rates
As the relevant cost standard for setting termination rates should be BU LRIC which ref1ects the cost of an efficient operator, there should in -principle be no asymmetries between the rate of the established operator(s) and the rates of later entrants to the market. This is broadly consistent with the ERG Common Position on symmetry which states that termination rates should normally be symmetric and that asymmetry requires adequale justification, As noted in section 3.1.3 above, the Commission has previously noted in its Atticle 7 decisions that termination rates should normally be symmetric and that asymmetry requires an adequate justification based on objective cost differences outside the control of the operators concerned. A key argument frequently used in support of the authorisation of temporary asymmetric rates in favour of later entrants, and in the absence of any verifiable _objective Cost differences, is that it forms p'art of an overall entry assistdnce policy which is aimed at promoting new entry and longer-terin competition in fixed and mobile markets. The rationale is that allowing higher post-entry profits will encourage entry and investment and lead to more intense competition in the long run. However, it is generally accepted that such a policy may also attract inefficient entry. It may also be expected that consumers will end up paying higher retail prices than would othenvise be the case in a situation of cost-based symmetdc termination rates. In addition, providing a _mark-up for new entrants while regulating incumbents at cost effectively creates a cross-subsidy and can simultaneously reduce the incumbents' investment incentives.
>7 Armstrong and Wrlght (2.007), Hoernig (2001), Calzada and Val\etti (2.007), Harbord and Pagnozzi (2008).
18 ~EN
EN
" "
967
In the light of the above, it is questionable whether asyinmetric termination rates should be used as a form of entry assistance, On the contrary, it may be argued that symmetric price control based on an efficient-cost benchmark, rather than on the costs actually incurred by an operator, gives efficient investment incentives to firms. These considerations apply to both fixed and mobile markets.
Arguments relating to economies of scale and the higher unit costs initially incurred by new entrants have in particular been raised as possible justification for transitory asymmetry in termination rates. The Comlnission has previously noted in that respect that objective cost differences due to substantial differences in the date of marl(et entry could represent a possible justification for asymmetry. At the same time, it should be borne in mind that rewarding an operator for its smaller siz_e can give inappropriate investment signals and risks promoting inefficient entry. SuCh a policy may, for example, act as a disincentive to smaller operators to innovate and expand. In, that respect, the Commission has previously stated that the fact an operator entered the market later and that it therefore bas a smaller market share can only justify higher tennination rates for a limited transitory period. The persistence of a higher tennination rate would not be justified after a period long enough for an
,·operator to adapt to market conditions and become efficient and could even discourage smaller operators from seeking to expand their tnarket share.
As regards the extent to which new entrants might be expected to have higher unit costs than incumbents, it has been argued that this consideration is more relevant for mobile than for fixed operators. Fixed operators have the oppo:rtUnity to build their networks in a particular geographic area and focus on hi"gher-density routes, Furthermore, they can lease relevant network services from the incumbent to reduce the fixed costs of network build and thereby' reduce the impact of economies of scale. It has been argued, however, that scale economies play a bigger role in mobile networks: due to coverage requirements new entrants initially incur higher per-unit costs arising from their smaller customer base, although there is some debate regarding the magnitude of the costs involved.
Following the above considerations, it is important, after having identified impediments on the retail inarket to market entry and expansion, to limit any asymmetries allowing new mobile entrants to recoup their higher incremental costs compared to those of a modelled efficient operator for a transitional period before a minimum efficient scale38 can be expected to be reached. Drawing upon the Ef{.G Common Position on symmetry, it is reasonable to envis.li.ge a timeframe of fciur years (from the date of entry of the operator concemed)-for phasing out asymmetries in mobile markets, based on the estimation- that in the mobile market it can be expected to take three to four years to reach a.!nark.et share of between 15 and 20%39
.
A further (albeit related) argument cited in support of temporary asymmetry is the existence of traffic imbalances bet\veen larger incumbent operators and smaller new entrants. Where a new market entrant initially has lower traffic volumes than the more established incumbents, this can result in net payments to the incumbents which are typically net receivers of traffic. It is further argued that the financial disadvantages which new entrants face as a result of th_;.ir lower traffic volumes can
See section 5.2.3 for the determination afthe minimum efficient sJi~~-in mobile markets. ERG (07) 83 final 080312, p. 94.
19 EN EN
968
be exacerbated by differential on-net/off-net pricing policies pursued -by the incumbent operators.
It is difficult to see how arguments regarding financial imbalances resulting from differences in traffic volumes and differential on-net/off*net pricing would justify setting asymmetric termination rates. This is because asymmetric wholesale pricing is likely to reinforce the asymmetric pricing observed at retail level. That is, the offnet retail prices of the incumbents will likely rise to compensate for the increased cost of off-net wholesale termination to the new entrants, As long as traffic imbalances_ persist, asymmetric pricing will likely only contribute to perpetuating any resulting financial imbalances.
Moreover, it has been argued that on mobile inarkets there may be exogenous cost factors associated with uneven spectrum assignments which result in per-unit cost differences between mobile operators. In that regard, the Commission has previously recognised that objective cost differences inayrelate to uneven spectrun1 assignments between operators, even in situations where the minimum efficient scale can be expected to have been reached. Exogenous cost differences may arise where spectrum assignments baV-e not taken place using market*based mechanisms but on the basis of a sequential licensing process where, for example, later entrants mainly receive 1800 MHz frequencies, thus facing higher unit costs in certain areas than operators with a 900 MHz allocation. Due to the better propagation characteristics of the 900 MHz spectrum, it is argued, for example, that in urban areas fewer base stations are needed to ensure indoor coverage than is the case with the 1800 11Hz spectnun.
The extent of this cost disadvantage depends on a number of factors, including the regulatory situation, the nature of the demand for coverage and the geography and topology of tbe country. It appears that this relative cost disadvantage decreases as the market shares of the later entrants grow, increasing their capacity needs. In addition, where the spectrum assignment takes place through a market-based mechanism such as an auction or where there is a secondary market in place, any frequency*induced cost differences become more endogenously determined and are likely to be significantly reduced or eliminated. Moreover, with further spectrum liberalisation taking place, it needs ta be exan1ined whether on a forward-looking basis additional .spectrum is likely to be made available through market-based assignment processes which might erode any cast differences arising from exis!ing assignments, For example, the digital dividend is leading _to tbe release of spectrti.m that is being freed up as a result of the switcho-Ver from analogue to all-digital television. The spectrum that will be relea~ed by the digital switchover is in the prime Ultra High Frequency (UHF) band. Since these bands are located in the lower spectrum range they can cover large geographical areas with relatively few base stations, offering nationwide network rollout at lower costs when compared to services delivered at higher frequencies, offering greater capacity but at shorter range.
An important argument for symmetric tennination rates at the level of efficient cost is that asymmetric pricing can foster inefficient behaviour and generate productive inefficiencies. Productive efficiency talces place when __ a good is produced. at the lowest cost possible. Rewarding an op·erator with a pric~ above an efficient or costbased -level can reduce its incentives to innOvate and ~ii:iimise costs. For example,
20
~-A-ti PEN
EN
5.
969
asymmetries based on differences in dates of market entry and sca1e may disCourage innovation and cost efficiency on the part of the later entrant/smaller operator, and may give rise to inappropriate investment incentives and inefficient entry.
Consequently, consumers may end up paying higher prices than would otherwise be the case in a situation of cost~based symmetric tennination rates. This is because the higher termination rates have to be recovered by the originating operators and will presurnably be passed onto consumers in the faun of higher retail prices. This effoctively creates a cross-subsidy from lower-cost operators and their consumers to their less efficient rivals, thereby generating allocative-efficiency concerns. Meanwhile, the less efficient operator benefits from the lower tennination rates of its rivals, thus enabling it to lower its retail prices and win customers. As the-. subsidised operators expand, the negative impact on retail prices and consumer welfare is even greater. Given that tbe stated purpose of the regulation of wholesale termination charges is to prevent excessive pricing and its negative impact on consumer welfare, it is arguably counter~intuitive to apply a remedy that also generates allocative and productive inefficiencies.
THE AI'PLICATION OF COST-BASED REMEDIES
Following the choice of the appropriate cost base, cost model and cost standard (i. e. a BU LRlC model based on current costs), this section deals with the implementation of the chosen model in practice. The first question deals with the choice of technology, from that follows the definition of the increment. Since both fixed and mobile termination rates are generally subject to regulation, and since fixed and mobile networks are to an increasing extent in competition with each other, attention must be paid to consistent treatment of both network types,
5,L Fixed networks
5.1.1. Choice of technology
From a forward-looking perspective, a new operator would choose a packet~switcbed network with all services delivered over an IP core network. Given that regulating termination rates at the level of efficient costs aims at reflecting a situation which would prevail under competitive circumstances, this implies the selection of the most efficient technologies subject to the availability of such technologies in the timeframe considered by the model. In a competiti\.'.e·market, a new entrant would opt for the most efficient available technology, i.e. one based on NGN, for tbe purposes of building a core net\Vork. Hence; a BU model built today could assume that the core network is NGN-based, to the extent that the costs of such a network can be reliably identified. Specifically, this implies that all existing PSTN switches would be assumed to be replaced with NGN equivalents and that Synchronous Digital Hierarchy/Asynchronous Transfer Mode (SDHIATM) transmission equipment becomes redundant. It also implies that voice traffic needs to be converted to/from IP packets at the edges of the network. "Whilst connecting operators still interconnect via Time Division Multiplexing (TDM) technologi_es, there will be a need to include Media Gateways in the BU model in order t<;\'-interconnect with operators.using PST'N"-basf:d equipment.
21
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Number of Base Transceiver Stations-LTE
Number of Base Transceiver Stations-CDMA
Number of Base Transceiver Stations-OTHER
Number of BTS-not generating revenue from outgoing calls
2. IV)OBiLE TRAFFIC AND CALLS
Note: Please specify time of day periods for current Peak and Off peak retall ra~t"'"'----~
~~-~eak I I 2.1 Nu.mber of Traffic and Calls (Total Prepaid & Contract)- OUTGOING
$~fi,%1ffj*~~%i,~Ji~~wb'.~ft5Tu1Z~r\t~~H~lt%~M,~~:qt~~: On net Total Calls
Total Minutes
Peak (min)
- Off-peak {min)
fll~Wf\~NfJ&~ l111&11'~I~t i.~~~~~~ Off net to.M';bue Total Calls
Tota\ Minutes
- Peak(min) - Off-peak (min)
.~?f#'!!Jififr.~;~~'!J{l Wi"'.~~\' ·~l~'&\.~_n-:f~~'.~ i~1t~~ZiW&"4'ft~~t%.z.~~.!:'i 't¥fi:[email protected] ,."Wf14''dil'~ g~~r:PJit:~rttt ·/'ff~'.' Off net to Fixed
~; -~-
): .
Off net to lnternatlona\
Voicemail
:rotal(bl\I~~) Tota! (actual}
Total Calls
Total Minutes
- Peak (min) --------~
Tota\ calls Tota\ minutes
Total calls
Total minutes
Minutes
Minutes
2.la Number of Traffic and Ca\1s (Contract}- OUTGOING
On net
Off net to Mobile
Off net to Fixed
Total Calls
Total Minutes
- Peak {min)
'l
' Tota\ Calls :Total Minutes - Peak {min)
- Off-peak {min)
-~~'.~ifi;~J,~~i~~t,~;w: Total CaHs
Total Minutes c· -Peak (min)
rans it Total Calls
.t~
I
971
972
973 !Total Minutes I I I I~ Peak (min) I I I 1-~I I I
I Off net to ........ )Total calls ) I !Total minutes I I I
Voicemai) ' ITotal calls I I I I ITotal minutes I I I
Total (billed) !Minutes I I I Tota\ (actual) !Minutes I I I
2.lb Number of Traffic and Calls !Prepaid) - OUTGOING
. ~'~ff~'.$ On net Total Cal\s
Total Minutes - Peak (min)
'c " "'~'
Off net to Mobile Total Calls Total Minutes
- Peak {min) , U> "'
Off net to Fixed Total Calls Total Minutes
- Peak {min)
•iiilj ~Transit lrotal Calls I I
!Total Minutes I I I
C::'
~
974 I 1- Peak (min) I ! l l -
- Off-peak (min) l l :~S~:t~#~\~~i~~~f$~1\ .!!}tlI!~§~Y.!/JflfJli~ [off net to l l I hotal ca\!S- -- I --1 hotal minutes - - 1 I l
'
IVoicemai\ lrota\ calls l l l !Tota\ minutes ·1 I I
!Total Artime sold - I Minutes l I hotal Airtime used I Minutes l l - -
2.2 Number of Traffic and Calls (Total Prepaid & Contract)- INCOMING
-1Elf~~&\~% :tJ!~,~~~~Q~-ilo:' Incoming - from Fixed Tota! Calls
Total Minutes Peak (min) '>tt-neo" >mm>
Incoming- from other Mobile Total Calls
Total Minutes
- Peak{min)
-~ Incoming - International Access Total calls ' I
Total minutes I I
2.2a Number of Traffic and Calls (Contract)- INCOMING
Fixed Total Calls
Tota\ Minutes
975 I - Peak (mtn) I
I~ I
Incoming- from other Mob He Total Calls
Total Minutes -
- Peak (min)
- Off-peak lminl
Incoming- International Access !Total calls I !Total minutes I
2.2b Number of Traffic and Calls (Prepaid)- INCOMING
,,M1f1~J.~eJ;{t,fi Incoming - from Fixed Total Calls
Total Minutes
- Peak {min)
- Off-peak (min)
:ir~~#l~4~'ii!-~(J{' ~~1tr~f~Jf,\'f,~¥t&JRil~-~!t ;$1il~~'llJiKi/1 'Ntt~~~'f~~~liW,¥,1!' iffdfl5~i~ff'~~ft~.1k\~ii;$!iiYl$~1!4~¥ Incoming- from other Mobile Total Calls
Total Minutes
- Peak (rnin}
-ii& Incoming- International Access Total calls \ I
Total minutes I I
2.3 Number of SMS Traffic (Total Prepald & Contract)- OUTGOING & INCOMING TRAFFIC
S sent on net Peak
976 Off-peak
Total SMS sent off net Peak
Off-peak
Total SMS received from off-net Peak
Off-peak
Total .
SMS retai\ revenues Peak
Off-peak
Total
2.3a Number of SMS Traffic (Contract)- OUTGOING & INCOMING TRAFFIC
SMS sent on net Peak Off-peak
Total
SMS sent off net Peak
Off-peak
Total
SMS received from off-net Peak
Off-peak
Total
SMS retail revenues Peak Off-peak
Total
2.3b, Number of SMSTraffic: \Prepaid)- OUTGOING & INCOMING TRA.FFlC
Peak
Off-peak
Total SMS sent off net Peak
Off-peak
Tota! SMS receive.d from off-net Peak
Off-peak
Tota! SMS retail revenues ?eak
Off-peak
Total
2.4 Number of "PLEASE CALL ME" Traffic
"Please C<;iH Me" SMS sent Peak
Off-peak
Total
Estimate of 'call back minutes' Peak
Off-p_eak
Total
3. MOBILE INTERCONNECTION REVENUES & OUTPAYMENTS
3.1 Interconnection Outpayments (Rand)
Total interconnection service outpayments
Terminating Fixed Traffic outpayments c:::::~I ~Terminating Mobile Traffic outpayments
. ~' Total outp3yments for SMS traffic
Total Transit Outpayments
3.2 Interconnection (wholesale) Revenues (Rand)
Total interconnection service revenues
Terminating Fixed Traffic revenues
Terminating Mob lie Traffic revenues Total Term\nating SMS revenues
Tota\ Other l_nterconnect revepues
Total Transit revenues
4. RETAIL REVENUES
4,1 A.verage Retail Revenue Per User (ARPU}{Rand)
Prepaid
Contract
4.2 Average monthly minutes Of use (MoU) per user
Prepaid
Contract
4.3· Retail Revenues {Rand)
-·-- -··-·---
977
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'
978
:~}it~f(:f~l,t'
On-net calls
Off net calls to mobile
Off- net calls to fixed
SMS traffic
Total
4.4 Average number of subscribers who spend RS or less per month split per Province
Eastern Cape
Free State
Gauteng
Kwa Zulu Natal
I impopo
Mpumalanga
North West
Northern cape
Western Cape
4.5 Retail Promotions
.verage minutes of use per promotional package
Average number of subscribers per promotional package
No of active tariff plans per period
Revenue· per tariff package
No of subscribers per tariff package
Total
Average length of promotion
Average minutes of use per promotional package
Average number of subscribers per promotional package
No ofac,tlve tariff plans per period
Revenue per tariff package
No of subscribers per tariff package
Total
4.6 Data Volumes
Data Volumes {Prepaid Tota\)
Data Volumes (Average Usage/Prepaid SU~scriber)
Data Volumes (Postpaid Total)
Data Volumes (Average Usage/Postpaid Sub.scriber)
Total
4.7 Devices used on network
umber of smartphoncs
979
980
No of feature phones
No of tablet devices
5. ADDITIONAL DATA
average monthly minutes of use)
6. FINANCIAL INFORMATION
6,1 \NVESTMENT LEVELS (Rm)
Software (incL billing systems) Foreign Investment {Inward FDI) Total Investment
-z:; 6.2 Please provide information on the annual subscriber acquisition costs in terms of
'~ Hond'°;' '°'" t~r/j)g&;fi-.JJ.Q;~'I ~,;~~~11.~f'J~,{~12.0li-
b) Handset subsidies
c) Service provider/dealer incentives or commissions
d) Advertising and marketing costs e) Other cOsts (please specify) between 2011- 2012, inclusive I I ?l !he responde"nt confirms that it has submitted the following as an Annexure:
-c::;
.\;
D D
Audited Flnancia\ Statements, 2009 - 2012
981
982
Review of results
Overview We are pleased to announce MTN's results for the year ended 31 December 2012, which notwithstandlng significant challenges, renect solid progress in growing subscribers, revenue and EBITDA The year was
characterised by the continued global economic slowdown, increaslnglycompetitlve mobile markets as well as regulatory and political challenges. The new MTN Group structure, put in place in early 2012, which sees
the business split into key pillars, namely South Africa, Nlgeria and the 'Large and Small Opco Cluster; has enabled more focused management and better execution of strategies across the various business units.
Over the past year, subscribers increased 15,1 % to 189,3 million, a strong result in the face of the ongoing
subscriber registration requirements and network challenges in key markets. The low levels of mobile
penetration across our markets should support continued strong subscriber growth.
Revenue rcir the year increased 10,9% ("8,5%), with the majority of our operations delivering strong
organic growth. Organic revenue growrh for all operations excluding Nigeria increased *~12,3%. Despite
a challenging period for Nigeria (revenue --o,8%) following significant tariff declines amid heightened
competition, the last quarter of2012 has delivered consistent month-on-month growth, highlighting the
strong underlying demand which we expect to continue in 2013.
Group EBITDA Increased 8,2% to u"R57 978 million with an EBITDA margin ofu"42,9%. Encouragingly we
saw margin improvement across the majority of our Large Opco Cluster with organic growth in E131TDA of
.... 20,7%. Nigeria negatively impacted the Group's overall margin performance but has enjoyed an improvement in the fourth quarter which we expect to continue during 2013.
We delivered on our commitment to shareholders and customers to accelerate our network rollout, with
7168 (3 685 2G and 3 483 3G) sites delivered during the year, a significant improvement on the 4 126 sites
completed in 2011. In an effort to accelerate our 2013 capex investment programme, the reported capex
for 2012 includes some equipment delivered for part of the 2013 roll out We believe this will be a key
factor in securing our continued growth over the medium term.
Prospects After a challenging 2012, the Group is well positioned for 20i"3. We.expect to deliver conrinued organic growth in both revenue and EBrrDA and anticipate reaching the milestone of 200 million subscribers by
mid-ye<Jr. The recovery in the performance of our key Nigerian operation is expected to continue
throughout 2013_ This together with a lower tax rate and the benefits of the substantial network
Investment made in 2012 across all operations, which is to be continued In 2013, is likely to support
growth in reported earnings in 2013. We continue to explore value accretive M&A activities.
Any forward looking information contained in this announcement has not been reviewed or reported on
by the Company's external auditors.
4 MTN Group LimitedAualted Results - for the year ended 3 ,'December 2012
984
DIVIDEND POLICY
The Group has reviewed the current dividend policy which has been based on a payout ratio. In light of
the ongoing exchange rate volatility and !he impact of this on reported earnings, MTN has taken the
decision to move to a dividend policy of absolute growth for the coming three-year period through to the
end of 2015. Whilst we aim to grow dividends in a range of5% to 15%, these payments remain at the full
discretion of the board of directors of Mm ("the MTN Board'~ and will be considered by taking account of
the growth needs of the business and the associated free cash generation. For the 2012 financial year, our
final dividend of 503cps implies growth in the full year dividend for 2012 of 10%.
CHAIRMAN
5harehol'der.s are advised that Mr Cyril Rarnaphosa, a non-executive director and Chairman of MTN will be
retiring at the forlhcoming Annual General Meeting of shareholders on 28 May 2013.
Mr Ramaphosa was appointed to the MTN Board on 1 October 2001 and has been serving as Chairman
of the MTN Board since 2002. He is also Chairman of the Nominations Committee as well as a member of the Remuneration and Human Resources Committee.
Following a review of his business related commitments, which include directorship of MTN, Mr Ramaphosa
has now informed MTN that he wishes to relinquish his position as non-executive director and Chairman
of MTN and will therefore not avail himself for re-election ot the Annual General Meeting to be held on
28 May 2013.
Mr Alan van Biljon, Lead Independent Director will, ln consultation with the Nominations Committee,
undertake the process of identifying a suitable successor to Mr Ramaphosa.
The MTN Board thanked Cyril for his selfiess and visionary leadership as well as his immeasurable
contribution that has made MTN to be one of Africa's biggest success stories.
HOFFMANN COMMISSION
As previously communicated the Hoffr:1an Commission repo.rted its findings and recommendations to
the MTN Board on 1 February 2013. In reaching these findings, following a critical examination of the
evidence, the Hoffmann Commission found that Turkcell's alleg·ations are "a fabric of lies, distortions and
inventions'. The full report of the Hoffman Commission was released by the MTN Board, and is available in
the investors' section of the company's website at wwvv,mtn.com.
MTN continues to vigorously defend the US Proceedings, and expects that the US Court will decide its
motion to dismiss such proceedings in the second half of 2013.
985
Review of results
SANCTIONS
MTN continues to work closely with all the relevant authorities to manage US and EU sanctions against
Iran and Syria. MTN continues to retain international legal advlsors to assist the Group in remaining
compliant with all applicable sanctions.
Driving sustainable growth We will continue to refine our traditional product offering as well as actively develop new opportunities
to ensure the delivery of a bold new Digital World to our customers.
VOICE,
Over the past year, billed traffic volumes increased 24,6% while voice revenue grew-4,0% on a constant
currency basis as tariffs continued to decline. Voice revenues now account for 63,0% of total revenue,
dav.m from 65,2% in the prior year due to the relative growth of other revenue streams.
\Nith Group weighted mobile penetration just over 70%, and people penetration below 60%, we still
expect to see continued growth in voice revenue over the medium term. In addition, the Group will also
benefit from the expected improvements ln voice revenue growth in Nigeria in 2013.
DATA AND RELATED SERVICES
Growth in our data and related service revenue remains a key focus for the Group, with this expected to
be an important revenue driver as the rate of increase in voice penetration slows and competition
intensifies.
In 2012, data was a strong performer, with data revenues *58,5% (80,0%) higher and data traffic on MTN's
network 65,9% higher at 30 521 TB. While South Africa remains the main driver of data revenue:,
contributing 43,9% of the total, the *111,6% (247,8%) local crnrency ('LC1 growth in Nigeria hlghlights the
growing contribution from data across operations. MTN lv1obile Money has· also started to gain traction
and we expect to see a much improved contribution in 2011 · ,
ICT EVOLUTION
Towards the end of 2012, we concluded i:he integration of the South African MTN Business function into
MTN South Africa. This wlll allow for a more holistic solution offering to our clients, designed to improve
efficiencies and deliver consistent quality. We continue to focus on integrating our broader JCT business
across all markets and our ongoing infrastructure investment will allow us to leverage our key products
and services across the MTN footprint
6 M!N Group Um1~ed4ud1ted Resu!rs - for theyeor ended 31December2012
Financial review REVENUE Table 1: Group revenue country split and contribution (Rm)
2012
South Africa 41 350
Nigeria 38 697
Large Op1Co duster 37 818
Iran 12 175
Ghana 6862 Cameroon 3 812
Ivory Coast 4124 Uga11dil 3 296
Syria 5 391
Sudan 2 158
Small OpCo cluster 17 761
Head office companies and eliminat!ons (514) ---------·
Total 135 112
986
Local currency
2011 % change % change ......... ___ . -·-·-· ~ .. , -
38 597 7,1 7,1
34 879 10,9 (0.8)
3'1- 563 9.4 17.7 11 050 10,2 26,1
5 941 15,5 21.3 3 331 14.4 9.0
3 351 23,1 17,0
:!481 32,8 16,2
6 ~63 [16,6) 2,4
1 9~6 10.9 28.3
14144 25,6 14,0
(299) 71,9 6/,4 -------"-
121 884 10,9 a.s
Group revenues Increased 10,9% to R135 112 million, supported by solid organic growth in South Africa
(+7,1 %) and although Nigeria had a difflcultyear ""(-0,8%) a number of operations continue to outperform
with strong0 organic revenue growth: Iran (+26,1%), Ghana (+21,3%), Uganda(+ 16,2%), Sudan (+28,3%)and
Ivory Coast (+17,0%). Group data revenue increased *58,5% and was an important driver of total revenue
growth. The weakness in the average rand exchange rate during the year also supported the improvement
in reported revenue.
Table 2: Group revenue oinalysis (Rm]
Outgoing vok:e Incoming 11oice
Data SM5
VAS
Devices Other
Total
Actual f'nor
85 069 ?9 535
18 567 18 530 14574 9193
B 167 7 315 916 718
6 177 5 030
1 642 1 563
135112 121 884
f(eported Org;mic Contrlbutio11 % change % cha11ge t•J revenue
7,0 4.0 63,0
0,2 (1.4) 13,7
58.S 57,6 10,S
11,6 1.S,2 6.0
27,6 (12,2) 0.7 22,8 22,1 4,6
5,1 3' 1,2
10,9 8,5 ''f~
987
Review ofresults
Table 3: Cost analysis (Rm)
Reported Organic Contribution
Actual Pnor % ch::inge to revenue
Hand5ets 18,1 7,2 1.~,terconnect 13 928 12,4 10,2 10,3
Roaming l 113 1 009 103 8,8 o.a Commi>sions 6 759 3444 (20,0) (22,0) 5,0
Revenue Share 5 678 s 857 (3,1) 14.0 4.2
Service Provider Disc 5472 2 640 107.3 100,1 4,0
Network 14786 12 925 14,4 11,2 10,9
MarketlnCJ 3 821 3 720 2,7 (0,8) 2,8 Staff 7775 6 75'1 15,1 10.5 5,8
Other OPEX 8 321 6 423 29,6 24,7 6,2
Total 77 442 68 318 13,4 11,9 57,3
EBITDA Table 4: Group EBlTDA (Rm) country split and contribution and EBJTDA margin (%)
Reported Organic Actual Prior % change % change
··---·---·-·· South Africa 14476 13 591 6.5 6.5
Nigeria 22544 21 514 4.8 (6,2)
Large OpCo Cluster 14935 14 656 1,9 7,6
Iran 5 388 4 697 14.7 30,8 Ghana 2 537 4129 (38,6) GS.SJ Cameroon 1 750 1 454 20A ,,1.4
Ivory Coa>t 1 662 1 395 1,9,_l_ 13,2
Ug;;nda 1 762 .SSQ 105,8 76,4 Syria 1 23& I 690 (26,7) {9,9)
Sudan 598 435 37.5 58.5
Small OpCo Cluster 6 129 4 299 42.6 31,5
Head office companies and eliminations 480 690 (30,-4) (31.5) ----------··
Total 58564 54 750 7,0 3,3 --"·-·------·---' ·------- ---"--·-------- ·-" -
Group EBIIDA increased 7,0% to R58 564 million which includes R586,6 million related to the profit on
tower deals. EBITDA excluding the profit on tower sales was R57 978 million, vvith an EBITDA margin of
42,9%. The growth in EBITDA was supported by solid organic growth in South Africa (+6,5%) and particularly
strong results from Iran, Ghana, Uganda, Sudan and Ivory Coast where *"organic EBITDA gro\Nth was 30,8%,
µ~ 8 MTN Group Limfred Audited Resull5 - .ror the yeor ended JI December 2012
988
22,6%, 22,4%, 58,5% and 13,2% respectively, After a challenging year, Nigeria reported a decline in EBITDA
of 6,2%. A number of once-off costs resulted in an approximate Rl ,0 billion reduction in head office EBITDA. The key components of this cost relate to the Turkcell lawsuit and the Hoffmann Commission; Iran tax
related charges and forex costs; and costs related to the new shared services initiative. The combined
impact of these on the EBITDA margin was approximately 0,7%.
DEPRECIATION ANO AMORTISATION Table 5: Depredation and amortisation (Rm)
Depreciation Amortisation
Reported Report eel
Actual Prior % change Actual Prior % ch<inge
South Africa 3 423 2 915 17,4 j 499 \ 363 37,5
Nigeria 5 651 4 637 21,9 I s25 I 381 37,8 I
Large Op(o Cluster 3 576 3 904 (8.4) I 734 j 832 (11,7)
Iran 978 1 143 (1.i,4) I 168 1 173 (2,9) Ghana 538 709 (24,1) 1 80 i 133 (39,8)
Carnf:l·oon 429 374 1471
1631 197 (17,3)
ivo1y Coast 368 1172 (2401 ,!~I 120 11,7
Uganda 346 356 (2,8) 88 (8,0)
Syria 562 445 26,3 i 491 58 15,5
Sudan 355 405 (12.31 I 59 ! 63 (6,3)
Small OpCo Cluster 2 048 1 785 14,7 ) 3871 290 33,4
Head office companies I !
and eliminations 162 55 194,5 241 297 (18,9)
Tota! 14860 13 296 11.8 2 386 \ 2163 103 ·-· -"-------·" -·-------·-
Group depreciation increased by 1 l,8%to R14 860 million andarnortiSation increased by 10,3%to R2 386
million, mainly due to the increased investment in property,. plant and equipment in South Africa and
Nigeria.
989
Review of results
NET FINANCE COSTS Table 6: Net finance costs (Rm)
Reported Organic Percentage
Actual P'·ior % change % change of revenue
1-.Jet Interest paid/(received) 825 1454 (43,3) (100,GJ 0,6
Net rore~ losses/(gains) 3 302 (3~) NM C"M 2,5
f'ut option 30 162 (82,1) (100.0J
Net f!nance costs 4 157 1 582 162,8 133) 3,1 -·-"""""" _____
Net finance costs were R4 157 million, an increase of R2 575 million on the previous year, due to the effects
of net fote~,and functional currency losses.The weakness in the Syrian pound, which declined 60% over
the year, resulted in a loss ofRl 507 mlllion related to ~he dividend payable, while the dividend due from
Iran resulted in a toss of R1 191 million with a further R243 million related to the revaluation of Iran tax
balances following the decline in the Iranian rial in the last quarter. Iran incurred additional forex losses of
R567 million, while vendor financing and current accounts in Sudan resulted in a forex loss ofR373 million.
TAXATION Table 7: Taxation (Rm)
Reported Organic Contribution
Actual Prior % change % cllange to ta1.atlon
Normal tax 11 265 :o 184 10,6 4,3 l.l7,2
Deferred tax 1 089 (146,5) (142.2) (3,9)
Capital gains ta;-: 73 {100,0) (100.0)
Foreign income and v\!ithholding taxes 1 256 1335 (5,9) \9,5) 9,7 Secondary tax on companies 898 I 172 (23.4) (23,4) 7,0
Total 12913 13 853 (6,8) (11.4) 100.C
The Group's taxation charge decreased by 6,8% to Rl 2 913 n:iilllon and the effective tax rate decreased
1,9 percentage points to 34,9%, The lower tax charge and effeCtive tax rate was mainly due to a deferred
tax credit movement and the discontinuance of STC in South Africa during the year.
EARNINGS
Attrlbutable earnings per share (EPS) increased 0,6% to 1 126,4 cents. Headline earnings per share (HEPS)
increased 1,9% to 1 089,1 cents from 1 068,6 cents. The depreciation of the Syrian pound, Iranian rial and
Sudanese pound impacted reported HEPS by 82,0 cents, 79,3 cents and 17,2 cents respectively.
10 MTN Group Limited Aud ired Results- for the year ended 31 December 2012
990
CASH FLOW
Cash infiows from operating activities remained flat principally due to the 27,3% increase in dividends paid to equity holders and 51,9% increase in taxation paid offsetting the 15% increase in cash generated by operations. Expenditure on property, plam and equipment (excluding software) of approximately R22
billion was 52,9% higher, which contributed significantly to the cash outflow In inves\ing activities. Cash
outfiows on financing activities were mainly attributable to MTN Holdings purchasing 16 million shares in
the MTN Group on the open market for R2, 1 billion.
CAPITAL EXPENDITURE Table 8: Capital expenditure analysis (Rm)
Actual Prior Reported Organic . _, ··-·~---··----- - .. , ·---.·"---·-
South Africa 6416 4 105 56,3 56.3
Nigeria 13 733 6 331 116,9 92,8
Large OpCo Cluster 6188 4 790 29,2 51,9
Iran 1122 1 168 (3,9) 28,2 Ghana 1 091 845 29, 1 37,6 Cameroon 724 325 1:!2,1 111,3
Ivory (OFISt 903 406 122.4 112,0
Uganda 435 651 (33.2) (40.6)
Syria 577 442 30,5 68,8
Sudan 1 336 952 403 103,0
Small OpCo Cluster 3 052 2 333 30,8 (:25,6)
Head office companies and elirnlnat!ons 712 158 350,6 306,9
Total 30101 17717 65,9 56,9 - ···~-----·
Cap ex increased by 69,9% to R30 1 O l million as we focused on capital. inveStment a Cross the Group. The
pre-ordering of capex equipment for the 2013 rollout result~d in a R2,0 billion year-on-year increase in
inventory and 'work in progress'. The weakening in the rand Increased capex by '""'R1 379 million. lfthere
had been no change in currency rates during the year, capexwOuid have been ~'"R28 722 million.
991
Review of results
ASSETS AND LIABILITIES Table 9: Net debt analysis (Rm)
C~sh Interest·- Inter-
and c~sh bearing company Net debt!
equivalents liabilities ellrninations (Cash) --·-----·--·-·--- . _______________ ,, __ ,, ·----·-----------·-·"
South Africa (3 985) 16 470 (16 268) (3 783)
Nigeria (6 721) 12 613 5 892
Large OpCo Cluster (11 217) 7 775 (4 559) (8 0011
Iran (3 175) 1 695 (1 686) (3 166)
Ghana (98'1) 51 (933)
Cdmeroon (151'1) 537 (977)
Ivory Coast ('194) 037 143
Uganda (726) 409 (317)
Syria (3 86i<] (3 868)
Sudan (456) 4 446 (2 873) 1 117
Small OpCo Cluster (3 716) 6 220 (2 097) '°' Head office companies and elimlnatlons (12 407) 13 983 (I 605) (29)
Total [38 046) 57 061 (24 529) (5 514) -~------"· ---------·--- --.-~-··-------------- --.. -·----·-~
Assets and liabilities were negatively impacted by the depreciation in the Iranian r'ial, Syrian pound and
Sudanese pound. Property, plant and equipment Increased 8,2% due to the higher capital expenditure in
the second half of 2012. Current assets decreased 8,3% mainly because of decreases in cash balances.
Interest-bearing liabilrties have remained substantially in line with the previous year.
CASH BALANCE
Net cash decreased by 53,0%to RS 519 mJlliqn from Rl 1 817 million, lqrgely a result ofini:reased dividend
payments, capital expenditure and share buy-backs. At year e.nd, the·MtN Group reported net cash of
approximately R7 034 million in Iran and Syria.
12 MTNGroupLim11edAud1red Results - forrheyearended 31December2012
Operational review SOUTH AFRICA
EBITDA (excluding MTN Business) margin was stable at 35,2%
Data revenue 37,6% higher
Subscriber market share increased to 37.7%
992
MTN South Africa recorded an impressive operational performance considering the step-up in
competitive activity in the market. The total subscriber base grew by 15,4% to 25.4 million, driven primarily by 15% growth in the pre-paid segment to 20,9 milllon. This was largely due to competitive offerings and
in particular the MTN Mahala and MTN Zone offerings as well as data services. The post-paid subscriber
base inqeased by 17,3% to 4,5 million. This growth in post-paid continues to be driven by competitive
data offerin9s and the success of hybrid and telemetry packages. Net connections for the year to ta led 3,4
million compared to 3,2 million in 2011, and had the effect of increasing market share to 37,7%.
Total revenue grew by 7,1 % to R41,4 billion from R38,6 billion in the prior year. This was primarily driven
by solid growth in data (excluding SMS) and airtime revenue, supported by subscriber growth. Data
revenue increased by 37,6% to R6,4 billion and contributed 15,5% to total revenue (excluding SMS). Data
revenue was boosted by the increase in data users to 13,4 million from 10,9 million, and S,5 million
smartphones on the network. Airtime revenue grew by 4,8% to R21,1 billion largely due to subscriber
growth. During the year, MTN South Africa sold 6,7 million prepaid phones and 1,3 million post-paid
phones. Blended ARPU declined by 9% to R1 22 from R 134 in December 2011.
EBITDA increased by 6,5% to Rl4,5 billion.The reported EBITDA margin declined by 0,2 percentage points,
primarily due to the 7,5% increase in operating costs. Operating costs were impacted by the 16,1%
increase in handsets and other accessory costs as a result of greater spend on high-end handsets. This was
partly mitigated by promotions increasing on-network traffic to 67,1% compared to 61,9% in the prior
year. This result was impacted by the inclusion of Business Solutions for two months.
Capex for the period amounted to R6 416 mlllion. MTN continued to modernise its netwo1k and focus on
3G coverage and capacity. Fibre rollout remains a priority to support the-higher network volumes.
The qualiflcation criteria for Long Term Evolution (LTE) specfrum is still being finalised by the Minister
of Communications who has embarked on a process to address the high demand frequency bands in
South Africa.
Reviewof results
NIGERIA
Full-year EBITOA margin of 58,3%
Consistent month on month revenue groV1'1:h from October 2012
Acceleratlon of network build~out to support revenue growth
993
MTN Nigeria experienced a challenging first half of 2012 mainly due to aggressive price competition
driven by bonuses on recharge, freebies and other promotional activities. Following significant capital
expenditure, the network quality improved during the second half of 2012. Together with new value
propositions, this enabled MTN Nigeria to regain some market share. The total subscriber base increased
by 13.9% to 47.4- million and market share was down 2,5% to 47,5% for the year.
Total reven~e in local currency (naira) in 2012 was fiat compared to the prior year notwithstanding the
increase in subscribers. Reported revenue in rand was positively impacted by the relatively weak rand rate
against the naira, with the average naira/rand exchange rate 10.66% stronger over the year. Revenue in
rand grew by 10.9% to R38,7 billion compared to R34,8 billion in 2011.
The EBITDA margin declined by 3,4 percentage points to58,3%, mainly because of flat revenue and higher
operating costs. The operating environment was characterised by the decline In the effective tariff, the
increase in promotional free minutes and an increase in interconnect costs, driven by an increase in off
network traffic.
Data revenue (excluding SMS) increased by *111,6% (247,8%) in naira supported by the availabil!ty of
affordable data-enabled devices (both GPRS and 3G). During the year a total of 3,8 million smartphones
and 201 k dongles were active on the network.This was achieved through partnerships with independent
device resellers, free SIM cards, and data bundle offers, as well as the refitting of service centres to make
them device oriented_ MTN Nigeria also saw strong growtl1 in Blackberry subscriber revenues.
During 2012, capital r:xpend!ture ofRl 3 733 million was capitalised. MTN Nigeria rolled out 1 414 2G sites
and 1 175 3G co-located sites and successfully implemented a large network swap and modernisation
programme. The regulator imposed fines during the year on the four GSM-0peratorS for poor quality of
service. These fines were subsequently paid and more realistic key· performance Indicators were
negotiated with the regulator. There remains no clariw on the deadline for SIM registration although the
regulator Is continuing with the harmonisation process to instittJte a central database for registration. The
percentage of subscribers whose personal details have been registered by MTN by year end was 84%.
14 MTN Group Umired Audited fle5ufts - for the year ended 31 December 2012
OTHER KEY OPERATIONS
Organic revenue grovvth of-'"16,6%
EBITDA margin excluding tGNer profits increased to 36,9% from 34,9%
Exceptional grovvth in data
994
+ 15
Iran reported a good result in a challenging environment. Total revenue grew by 26,2% (LC), driven
primarily by airtime and subscription revenues. which grew by 24,1 %, while SMS revenue increased by
30,4% {LC). Reported revenue in rand was negatively impacted by the relative depreciation of the rial
against the rand in the fourth quarter. Data revenue (excluding SMS) increased by *I 03,6% (267,2%),
driven mainly by increased GPRS utilisation as network qualrt}i improved, as well as by lower data prices.
MTN lrancell recorded an increase in EBITDA margin as a result of efficiencies and effective cost controls,
which la;gely offset the effect of the high inflationary environment. The roll out of some projects has been
slower than anticipated because of delayed equipment delivery and the impact of sanctions on the
importation of certain equipment.
Ghana continues to do well despite heighter,ed competition. Ghana now has six operators following the
launch of a new competitor in the second quarter of the year. This congested marketplace, together with
aggressive offerings from two of the incumbent operators, resulted in a decline of 1,9 percentage points
in subscriber market share to 50,5%. Despite this, revenues ir1creased 21,5% (LC) and EBITDA rose by 23,0%
(LC) excluding the profit on sale related to the tower transaction. Data {excluding SMS) revenue increased
by 95,0% (LC) thanks to data-related promotions supported by affordable handsets, lower data prices and
appealing bundle packages. Significant grovvth in airtime sales via MTN Mobile Money supported a
reduction in dealer commission costs. MTN Ghana's EBITDA margin reduced slightly due to rent and
utilities costs from the leasing of towers.
Cameroon is well placed for growth in 2013 and reported a solid set of results in 2012 despite being
impacted by a number of once-off adjustments. The business is well positioned to deliver a strong
performance in 2013 despite the sluggish economic outlook. The company achieved the best level of
network build-out to date and this has enabled continued improvement in network quality metrics. Data
revenues increased 25,4% (LC) with handset data revenues th~ key diive'r of this while ICT revenue was
stable. With improvements in ICT revenue and the MTN MObile Money business, we expect another
5trong performance in data in 2013.
995
Review of results
Uganda deliVered strong resu!ts in a competitive market with local currency EBITDA up 22,0% excluding
the profit on the sale of towers. Data revenue increased "86,4% (855,0%)(LO supported by a strong
performance in MTN Mobile Money. With 78% of our subscriber base registered and more than 2 mlllion
transactions each month, MTN Mobile Money now contributes meaningfully to Uganda's revenue. We
concluded the tower transaction with ATC during 2012, which saw the business sell 962 towers to ATC
This transaction will have a negative impact on reported margins in 2013 given the higher associated
lease costs.
Ivory Coast countered increased competition given the aggressive pricing from the other operators.
Reported subscriber numbers were negatively impacted by approximately 400 OOO disconnections as a result of the conclusion of the subscriber registration period. Despite this, the business delivered a good
operational result wlth EBITDA up 15% (LC). The business reported a substantial Increase Jn handset data
revenues w'ith ICT revenues and MTN Mobile Money up strongly.
Syria maintained operations in a challenging environment. During the year, revenue growth was limited
to 2,9% with this primarily driven by data revenue (excluding SMS) which Increased by 47,3% (LC). Most of
the revenue growth occurred In the first seven months of the year. As the crisis in that country deepened,
economic activity fn a number of towns and commercial centres was disrupted, With coverage and
si.;bsequently revenue affected. Reported EBrTDA declined by 26,8% largely as a result of the depreciation
of the currency. Revenue and EBITDA are expected to remain under pressure in the months ahead in the
absence of a resolutlon of the crisis.
Sudan reported an encouraging turnaround as the improvements evidenced in 2011 continued. The
business reported reVenue growth of 28% (LC) with EBITDA up just over 60% (LC). While off a low base, data
revenues increased by 722, 1 % {LC) and remain a focus for the business in 2013. High !nflaticn and increased
taxes remain a challenge and are negatively impacting disposable income. During 2012, MTN Sudan
recorded a 3,9 percentage point improvement in market share and the year ahead will see a continued
focus on strengthening our position and further gains in market share.
16 MTN Group Umired Audited Results- forrheyearended 31 December 2012
SUBSCRIBER NET ADDITION GUIDANCE FOR 2013
South Africa
Nigeria
Large opco Iran
Ghana
Cameroo:i
Ivory Coast
Sudan
Syria
Uganda
Small opco
Total
'OOO
2 900
7 OOO
8 100
3 850
800
1 OOO
300
1 350
0
800
3 OOO
21 OOO
Declaration of final ordinary dividend
996
Notice is hereby given that a gross final dividend of 503 cents per share for the period to 31 December
2012 has been declared payable to MTN shareholders. The number of ordinary shares in issue at the date
of this declaration is 1 883 484 324 (including 22 337 752 treasury shares).
The dividend will be subject to a maximum local dividend tax rate of 15% which will result In a net
dividend of 427,55 cents per share to those shareholders that bear the maximum rate of dividend
withholding tax of 75,45 cents per share. The net dividend per share for the respective categories of
shareholders for the different dividend tax rates are as follows:
0% 503.0000 cents per share
5% 477.8500 cents per share
7.5% 465.2750 cents per share
10% 452.7000 cents per share
12.5% 440.1250 cents per share
15% 427.5500 cents per share
These different dividend tax rates are a result of the appl:catfon cftax rates in various double taxation
agreements as well as exemptions from dividend tax,
997
Review of results
MTN Group Urnited's tax reference number is 9692/942/71/8. In compliance with the requirements of
STRATE, the electronic settlement and custody system used by the JSE Limited, the salient dates relating to the payment of the dividend are as follows:
Last day to trade cum dividend on the JSE
First trading day ex dividend on the JSE Record date Payment date
Wednesday, 20 March 2013
Friday, 22 March 2013 Thursday, 28 March 2013
Tuesday, 2 April 2013
No share certificates may be demarerialised or re-materialised between Friday, 22 March 2013 and Thursday, 28 March 2013, both days inclusive. On Tuesday, 2 April 2013, the dividend will be transferred
electronically to the bank accounts of certificated shareholders who make use of this facility.
In respect Of those who do not use this facility, cheques dated Tuesday, 2 April 2013 will be posted on or
about that date. Shareholders who hold de materialised shares will have their accounts held by the Central
Securities Depository Participant or broker credited on Tuesday, 2 April 2013.
The MTN Board confirm that the Group will satisfy the solvency and liquidity test Immediately after
completion or the dividend distribution.
For and behalf of the Board
MC Ramaphosa Chairman
Fairland
7 March 2013
RS Dabengwa Group President and CEO
18 MTN Group Limited Audited f!esults - (or theyeor ended 3 J Decemter 2012
BDlive - Print Ai1icle
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Vodacom to take Icasa to court 26 Feb 2014 I Thabiso Mochiko
Mobile operator says it is opposed to process followed by regu1ator when it decided on new mobile termination rates
VODACOM is taking industry regulator the Independent Communications Authority of South Africa (lcasa) lo court in a bid to keep it from implementing new mobile termination rates.
This comes hot on the heels of a similar case filed by rival MTN. Both companies have said they oppose not to a cut in the rates - the fees that mobile operators pay to carry each other's calls - but rather to the process followed by lcasa.
lease has decided to cut the rates by 50% to 20c/minute. MTN and Vodacom are required to pay an additional 24c/minute (a total of 44c/minute) to small rivals in what is described as an asymmetrical inlerconnectlon rate.
Both operators are strongly opposing the asymmetric rate, as they say it would subsidise small rivals.
Vodacom said on Wednesday that it supported lower mobile termination rates. "The issue at hand is not whether these 'rates come down; it's about ensuring that the legislated fair and objective process is used to determine the final rates,'' it said.
It claimed Jcasa had not followed this process and, as a result, Vodacom's customers would be "unfairly prejudiced".
Vodacom said it would have "far preferred to have settled this ln direct discussion with the regulator, but given the inadequate consultation, we have been left with no choice but to approach the courts".
The company said it stood by its previous proposal to the regulator that an Interim cut be implemented immedia\ely. "This will ensure that rates continue to come down and at the same time provide breathing room to follow the correct legislated process to determine the final rates."
The new rates were due to be introduced next month, but have been delayed to April to give the regulator time to respond to the court action.
- oOo-
"----·--'- .11· 1 ""'" /"II\' ~
MTN Response to Draft Regulations Pursuant to Section 67(4) ofECA, Gazette No. 33121
3.2.3 The glide path is unreasonable
Regulation 9 contains a "glide path" for call termination rates to be charged by established S'MP
licensees. For the reasons that follow, MTN submit that the glide path is unreasonable.
3.2.4 The glide path is in reality a t(lpid descent
The SO-called "glide path" is in reality not a glide path at all; it is an extremely rapid descent The
fact of the matter is that approximately 70% of the total cuts vrill be achleved over the first four
months (since the peak rate would drop by 60c between March and July 2010). ICASA has also
confused the length of the control period with the length of the glide path itself; it will only take
_two years to get to 40c. Once the March cut is factored in, the proposed glide path is probably the
most aggres~ive in the world.
MTN" notes that the benchmarks refeITed to by I CASA point to a four-year glide path (three years
to reach target). ICASA gives no reason why it has deviated from the results' of its own research
and has chosen to introduce a shorter glide path than international best practice.
Furthermore, the peak/off-peak price structure that has characterized the market for the past 15
years would be removed overnight. This is likely to lead.to considerable wholesale, retail and
network disruption, yet the rationale for this drastic decision is unclear.
3.2.5 !CASA has relied on outdated data in relation to MTN
The explanatory note states that, in order to arrive at the "efficient charge level", lCASA had
regard to MTN's CO A/CAM return for the year lo December 2007 (see page 69).
What this means is that ICASA bas relied on data that is two years out of date. The substantiat
investment made by MTN after the 2007 COA/CAM has therefore nOt been recognised. Past and
future inflation has also not been recognised. M1N submits that the use of 2007 CO A/CAM data
means that tennination prices have been determined on the basis-of data that is obsolete.
MTN set out its concerns to lCASA in a letter dated 3 May 2010. I CASA responded as follows in
its letter of 7 May 201 0:
"The Authority's View is that it is for MTN to put forward its views on the rl1:tes proposed by the
Authority ... ".
MTN (Pty) Limited 18 June20IO Page J2of40
~Response to Draft Ribgulations Pursuant to Section 67(4) ofECA, Gazette No. 33121 1000
4.5 Conunents on Regulations 7 to ll(Pro~competitive Measures)
4.5.1 The proposed glide patli is unreasonable
MTN notes ICASA appears to confuse the length of the control period (3 years until the next
review) with the length of the glide path itself (2 years to reach 40c).
The glide path bringing the peak termination mte from 89c to 40e (a 55% cut) between July 2010
and July 2012 is very steep indeed. But this ignores the recent March voluntary 30'% cut that
brought the peak termination rate from Rl.25 to R0.89. The draft proposals effectively mean the
peak termination rate will drop from Rl.25 to R0.40 (a 85c drop or 68o/o cut) over a period of just
28 months. To 11TN's knowledge, this is the most aggressive glide path ever implemented the
world, espeqial\y considering that 70% of the total cut takes place in the first four months (60c of
the total 85c c~i will take place between March and July this year). See figure l below.
Figure 1
Peak Termination Rate
'" ----------
.,, r . •oo .Jlllll !U8 .. ---+===----- --:--~o ~------·----
·-·----' ____ j __ _
The substantial front~loading of the proposed glide path is highlighted by I CASA when it states, in
Section 3.1. of Annexure 1 that:
"Three annual charges are recommended:
From July 2010- 0,65 iAR per minute f-50 oer cent reduction tr51; pre-March rate).
:·ri.
MTN (Pty) Limited 18 June2010 Page 18 of 40
MTN Response to Draft Regulations Pursuant to Section 67(4) ofECA, Gazette No. 33121 1001
From July 2011- 0,50 ZAR per minute C-23 per cent reduction), and
From July 2010- 0,40 ZAR per minute C-20 per cent reduction)" (our emphasis)
In such circumstances, it is not appropriate to talk about a glide path. The proposals represent a step
function.
MTN notes the proposed 85c drop is the largest cut implemented over a single price control period
in a sample of 24 international price controls proposals it has reviewed. In fact, to -MTN's
knowledge, this is the single largest cut ever implemented over a single price control in the world.
The substantial financial and policy implications of this drastic stance are discussed further in the
policy implications below.
MTN notes1
that it is somewhat ironic that ICASA, who started the voluntary cuts process under a
'moral suasion' banner, appears to have 'rewarded' the operators, who already made a substantial,
unplanned cut this financial year, with another, drastic and unplanned 30% cut just four months
later. The signal ICASA is sending the indust1y for 'doing the right thing' last March is not
encouraging.
Significantly, the glide path proposal is al odds with ICASA's Authority's own statement at
Annexure 1 Section 2.1.1 that: "Reductions should allow sufficient time for licensees to adjust to
new charging levels and structures and take these changes into account in their business plans and
capital expenditures." A 3 0% cut in interconnect just four month after another 30o/o does not allow
for such planning or adjustment.
Inexplicably, the Authority also appears to have ignored its own research regarding international
best practice for glide path durations. In Table l, Section 2.3 of Appendix 1, the Authority provides.
five examples of glide paths implemented in other jurisdictions. Out_of.these five Cotintries, three
implemented a four year price control period (Nigeria, U.ganda, United Kingdom), one even
implemented a five year control period (Tanzania) but just one .(Kenya) implemented the three year
control period proposed by the Authority in these draft regulations. The Authority's rationale for
diverting from its own best practice benchmarks is not explained.
The short glide path also contradicts the Authority's statement in Section 2.1.l of Annexurn 1:
"The grea\er the differential between the efficient charge level and the existing termination rates,
and the li~.g·er the reduction in the termination rates required, as is the case in South Africa, the
MTN (Pty) Limited 18 June 2010 Page 19 of40
MTN Response lo Draft Regulations Pursuant to Section 67(4) ofECA, Gazette No. 3312 l 1002
stronger the argument for a glide path". MTN cannot reconcile why the single largest drop in
interconnect rates in the world should be achieved over a glide path period that is shorter than best
practice.
For the reasons above, "MTN submits !CASA 's glide path proposals are unreasonable and
unjustifiable.
4.5.2 Tlte sudden rentoval of the peak/off-peak i.s w1justified
The "business model shock" highlighted above is compounded by ICASA's proposal to align the
peak I off-peak interconnection rates on i•t July 2010.
This proposal implies the price structure that characterised the interconnection and retail market for
the last fifteei;i, years wil! be removed overnight, leading to great wholesale, retail, and network
disruption.
MTN submits the rationale provided for this proposal is weak and its implications arc not
understood.
ln Section 2.1.3 of Annexure 1, the Authority summarises its reasons for the drastic move as
follows: "The initial view of the Authority is that in a South African context, Option 2, a set
regulated rate which reduces the regulatory burden, provides clarity and simplifies the charging
control regime is the preferred approach".
Facilitating ICASA's regulatory duties is an acceptable ob}ective, but this caruiot be the
overarching consideration for the Authority's regulatory choices. Consumer welfare and efficiency
should be the primary objectives. In its draft Wholesale Mobile Call Tennination Market Review
of 1 April 2010, Ofcom states at paragraph 9.114:
"Why do we permit time of the day pricing flexibility?
\Vithin the confines of the overall cap on charges we permit the f1exibility described in
paragraph 9.l 12and 9.113 [freedom to set peak, off-peak and week-end interconnect rates].
Our general approach to setting charge controls is to intervene no more than is necessary to
achieve our regulatory aims. And allowing MCPs [mobile providers] a degree of pricing
freedom can allow them to vary the 'Structure of charges, which can help prom,ote efficiency.
MTh' (Pty) Limited 18 June2010 Page 20 of40
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67( 4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Vodacom (Pty) Ltd written submission in response to Notice 314 of 2010 with regard to the Authority's intention to prescribe "Call
Termination Regulations" pursuant to section 67(4) of the Electronic Communications Act (No. 36 of 2005)
(GG NO. 33121 published on 16 April 2010)
Date: 18 June 2010 - 1-
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
INTRODUCTION
Vodacom thanks Independent Communications Authority of South Africa C'the
Authority'')s for the opportunity to comment on the draft "Call Termination Regulations"
C'the draft Regulations") pursuant to section 67(4) of the Electronic Communications
Act, Act 36 of 2005 C'the ECA'') and section 4 of the Independent Communications
Authority of South Africa Act, Act 13 of 2000, as amended C'the ICASA Act''). Vodacom
records its intention to participate in the public hearings scheduled for the 281h to the
30th of June 2010.
Vodacom welcomes the intent of the draft Regulations. It is noted that whilst there is
still a debate about what level mobile termination rates CMTR") should be set at to
maximise the well-being of South African consumers [urban and rural]r Vodacom
accepts the approach of the Authority to set the proposed cost-based MTR estimate on
available and verifiable real cost data. Vodacom agrees that the wholesale network
cost-based rate is around the R0.40 level.
In saying that, however, Vodacom notes that the proposed glide path from the current
MTR to R0.40 is far too aggressive, and will significantly impact on the wholesale and
price structures of the South African communications industry. Specifically, we note
that the Authority is proposing a 50°/o decline in MTRs in the current financial year. This
will have significant negative impacts on prevailing business models.
Vodacom recommends delaying the first step in the prqpo.sed glide path (reduction to
R0.65) until March 2011. This will assist businesses to factor the new rates into their
business models and decisions for the next financial year.
Vodacom's input in this submission is divided into four parts. Part I of the submission
addresses our concerns with the proposed glide path. Part II outlines Vodacom's
support of the Authority's proposal for symmetrical MTRs. Part III, assesses the legality
of the procedure followed by the Authority in its effort to regulate call termination. Part
Date: 18 June 2010 - 2-
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010) IV of the submission sets out Vodacom's comments on the draft Regulations and the
Market Review document, including suggested drafting formulations.
Date: 18 June 2010 -3.
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no, 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
PART I
Glide path
Vodacom re-iterates that it supports the Authority's estimate of a wholesale
network cost-based MTR of around R0.40. Vodacom commends the Authority
for allowing a glide path in the reduction of call termination rates and suppo~ts
the view expressed by the Authority in the Market Review document, recognising
that:
"the path of reductions in wholesale call termination charges should give
due consideration to two key objectives, reductions sho(J/d:
be achieved sufficiently quickly in order to deliver substantial benefrts;
and
allow sufficient time for licensees to adjust to new charging levels and
structures and take these changes into account in the business plans
and planned capital expenditure. "1
As the Authority is aware, the mobile licensees have as recent as 1 March 2010
reduced their peak mobile termination rate from Rl.25 to R0,89. This reduction
amounts to a reduction of around 30%1. Due to the fact that the reduction and
Implementation date was anticipated from ·at least August 2009, operators have
been able to take measures to absorb shocks to their operating models and
systems precipitated by this reduction in MTRs.
Draft Regulation 9(1)(b) proposes a further reduction to a-'single' (peak and off
peak same) rate of R0.65 to be implemented by July 2010 as part of a glide
path, which will have the effect of ino-easing peak mobile termination reduction
'ICASA Wholesale Call Termination Market Review for the period 2010-2013 document, page 72
Date: 18 June 2010 ·4·
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications- Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
from 30°/o to almost 50°/of with an additional reduction of 15°/o for off-peak
mobile termination rate - all in the space of a few months.
To assist the Authority in its assessment of an appropriate glide path, the table
below is included showing the glide paths agreed by NRAs around the world.
From this it is clear that there is very few, if any, precedents for a 50°/o decline in
one year. Taking the yearly decline (CAGR) of the proposed glide path, Vodacom
notes that it will be one of the steepest glide paths proposed. If the Authority
adbpts Vodacom's proposal to delay reduction to R0.65 until March 2011, South
Africa wfll still experience one of the steepest declines in MTRs.
Vodacom respectfully submits that the proposed additional reduction to the
mobile termination rate to be implemented by 01 July 2010 would effectively
result in the implementation of an immediate and verv sjgntficant wholesale price
reduction which, as noted by the Authority, will impact negatively on business
plans and capital expenditure programmes of the affected operators.
Date: 18 June 2010 - 5 -
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Vodacom acknowledges that MTRs have traditionally been high in South Africa.
This has, while ensuring diffusion of mobi!e technology to the benefit of all South
Africans and economic growth, resulted in a uniquely South African industry
structure. As a result, we anticipate significant disruption to the South African
communications industry structure. Vodacom recommends that the Authority
should ensure that industry disruption is minimised as much as possible.
An implementation date of July 2010 neither allows sufficient time for licensees
to 'adjust to new charging levels and structures; nor space for business plans and
planned capital expenditure programmes to be adapted. Highlighted below are
some of the negative impacts that may be occasioned to the operators by the
sudden reduction of rates without a smooth glide path~
Competition may be distorted especially in the case of operators
dependant on the current termination revenues. In this case, a severe and
immediate drop in termination revenues will hamper the a_bi!ity of such
operators to compete as there is insufficient time allowed to adapt and
change business models and assumptions. For example: renegotiation of
existing national roaming agreements between affected operators in the
market.
Insufficient time to re-negOtiate contracts with distrib.ution partners (e.g.
Service providers).
Business plans will be disrupted as it will be imp9ssible to re-plan and
adjust capital expenditure commitments on such limited time scale
contemplated in ICASA's Regulations and it will be impossible to review
tariff plans and bundled offers to adjust to the new price structure in time
Date: 18 June 2010 - 6 -
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Vodacom (Pty} Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
and to comply with the reasonable notice perlod required by distribution
channels and customers in respect of tariff changes and product offerings.
Vodacom, therefore, submits that lt !s cr!t!cal for the Authority to reconsider the
proposed further reduction of mobile termination rates for 2010 and
recommends that the implementation date for the first reduction in
terms of the glide path be moved to 1 March 2011 at the earliest.
No,t only is Vodacom's concern with the start point of 1 July 2010 for the glide
path;' but Vodacom also wants to express a preference for the retention of the
blended rate concept - maintaining the peak and off-peak rates differentiation -
as opposed to the proposed move to a single rate. Should the Authority,
however, be of the view that a single set rate is good for South Africa, Vodacom
recommends that consideration - for reasons of allowing space for licensees to
adapt and adjust their business models - should be given to delaying the
Implementation of a single rate to coincide with the end point of the glide path
period by phasing in the single rate through a gradual narrowing of the
difference between peak and off-peak rates over an agreed glide path period.
Date: 18 June 2010 - 7 -
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
SYMMETRIC MTRs
Vodacom agrees with the proposal by the Authority to set symmetrical MTRs, as
this is consistent with the economic and competitive reasons for the regulation of
MTRs - to estimate the price that would exist ln a contesta~ly competitive
market. In a competitive market, new entrants would not be able to charge a
higher prlce due to their lack of scale or any other, including cost,
"diSadvantage".
Vodacom notes that it is accepted that asymmetric MTRs distort competition -
indeed they are intended to do so in order to 'compensate' for competitive
disadvantages which small operators or recent entrants are otherwlse daimed to
face. If asymmetric MTRs had no impact upon· competition then it is hard to see
why NRAs would use them. But it is also claimed that the benefits arising from
these asymmetries - in the form of increased competition provided by smaller
network operators or new entrant who might otherwise exit the market - justify
the intervention.2
The UK Competition Commission3 C'UKCC'') in 2009 undertook an extremely
detalled and thorough investigation into MTRs. One of the key issues raised was
the need for asymmetric MTRs. The UKCC, whl1e acknoW!edging that in some
2 This is mnsidered in detailed modelling of authors such as Peitz (2005) , who points to the fact that although asymmetric termination rates may encourage market entry they result In a net loss of economic welfare and reduce investment incentives for the established firm. See Peitz, M. "Asymmetric regulation of access and prtce discrimination in telecommunications", International University in Germany, School of Business Administration, Working Paper 28/2005, January 2005. See Agure 3 in relation to economic welfare. 3 http://www.competitioncommission.org.ukfappeals/communications_actjmoblle_phones_detennination.pdf,
Date: 18 June 2010 - 8 -
1011
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010) circumstances asymmetric MTRs may bring long-term benefits to the industry,
there are a number of negative effects:
"If it is not based on differences in efficient costs, the beneficiary MNO will
be able to make excess profits from MCT and may use those excess profits
to compete_harder for any given subscriber in the retail market. This could
give the MNO a competitive advantage over its rivals that is caused by
different/a/ regulatory treatment, not greater efficiency or better servfcei
o The asymmetric MCT rate w!'ll raise the wholesale costs for other
MNOs and FNOs. This may put upward pressure on the other
operators' retail prices, making it harder for them to compete with
the beneffci'ary MNO, adding to the distortions of competiNon
between MNOs and potentially hindering competition between mobile
operators and between mobile and fixed operators.
o Asymmetry may mute the incentives of the beneficiary MNO to reach
efficient scale, as doing so would cause it to lose the. protection of
the asymmetry,. and may also lead to, or sustain., Inefficient entry.
o Asymmetric MCT rates may not be an effective mechanism for
intervention as any increase in retail prices (If they are applied
specifically to calls to the beneficiary MNO) would ultfmate/y be
harmful to the beneficiary MNO; as they may reduce the amount of
traffic and termination income received by ft, and may hinder its
growth.'' (Para.5.4.53)
Vodacom wishes to emphasise the findings above that the imposition of
asymmetric MTRs for smaller MNOs could, amongst others, result in the retail
cost to call those networks increasing. That is, asymmetric MTRs promote high
Date: 18 June 2010 - 9 -
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 Jn Notice 314 of 2010 (GG NO, 33121 published on 16 April 2010)
off"net pricing: and in so far as the Authority believes this to be a problem,
asymmetric MTRs would not be good for competition.
For the above reasors, Vodacom welcomes the pro-competitive decision of the
Authority to recommend symmetric MTRs.
Date: 18 June 2010 -10"
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Vodacom (?ty) Ltd submission on the draft "Gall Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
PART III
OVERAL PROCEDURAL APPROACH TO IMPLEMENTATION OF CHAPTER 10
AND SECTION 67(4) OF THE ACT IN PARTICULAR
Vodacom has continuously ~ in a plethora of past submissions emphasised the need for
regulatory certainty in so far as the import and meaning of Chapter 10 of the ECA is
concerned via the promulgation of the section 67{4) regulations. In Vodacom's view
the value of these regulations is and should not be restricted to the current market
review process, but significantly should also play a vital role for future market reviews
for the following reasons;
set boundaries on the definition and appropriate remedies for markets other
than call termination; and
set the tone for assessing the appropriateness of remedies imposed when the
call termination intervention is revisited in a few years.
Vodacom's submission, therefore, is that the section 67(4) Regulations should provide
the foundation and guideline for all subsequent Chapter 10 market inquiries into
markets or market segments. The clarity that should be provided by these regulations
in ampl!fying the requirements of Chapter 10 of the ECA should provide the degree bf
regulatory certainty that is obtained in other jurisdictions that have si.rnilar regulatory
obligations, such as the European Union and Malaysia.
In providing our comments to the draft Regu!atio·ns, it is instructive to set out
Vodacom's overall understanding of the full Chapter 10 market review process and how
its varfous elements hang together. The section 67(4) ''enabling" Regulations and the
underlying steps of the market review process that they inform and guide, are
illustrated in Figure 1 below.
Date: 18 June 2010 - 11-
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act,. no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
~ j;_~Ji;lli! "Allor"
q •• 11rylngw1tuna "Fllltir"
-
-
~Is! Eo•ontlal Fnolll\lo$
List ~x-o"t• Morkol•
"lndicatfVe" lists
/;'""'""' os.~S.MNIP >H4l!') '"')l•l
Figure 1: Overview of Chapter HI Market review prncess
-I
~"''"" ''""""~·~ •'Hieb) 0/(0l[b)
CompoUUon a .. o .. monl
Mo,,11"""'• ~r{·1~_,
I 1-L"':J
•Oo"""""' •Coob'«otE.,_,,,l~I
F•<ili'" ·V""'i'""llor .. ~.!p
I Romotilo• I
t
Vodacom takes note of the Authority's view that the review of the call termination
market has been an ongoing process since 2007 starting with the Publication of the
Findings pursuant to section 4C of the ICASA Act of an Inquiry Conducted in terms of
section 48 (''2007 Findings Documents") and that no significant substantial new
evidence would cause a change in the Authority's view on market definition.~
However, based on the market review process illustrated under Figure 1 above,
Vodacom submits that ICASA would be erring in-Jaw by inventing a proeess for market
reviews which fails to heed the a two-stage process required for the development and
implementatlon of the section 67C4) Regulatjons·
~ ICASA Wholesale Call Termination Market Review for the period 2010-2013, page v
Date: 18 June 2010 -12-
fv·:;;,
1015
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Firstly, the regulations must define the relevant market or market segment that
the Authority wishes to investigate, and set out the methodology to be used in
determining the effectiveness of competition in such market or market segment;
the pro~competitive measures that the Authority may impose in order to remedy
market failure in such market or market segment; and the other matters listed in
section 67{4).
Secondly. the Authority would apply those regulations by implementing the
designated methodology for determining effective competition in the relevant
, market or market segment, and imposing any pro-competitive measures that it
regards as necessary in order to address any market failures in markets that it
finds to be uncompetitive {according to the methodology prescribed in the
Regulations).
Parliament's intent in requiring the two-stage process enunciated above is, in
Vodacom's view, evident from the conditional and forward looking language in the
opening paragraph of section 67( 4):
"The Authority must prescribe regu!aNons defining the relevant markets and
market segments/ as applicable/ that pro-competitive conditions mav be imposed
upon licensees having significant market power where the Authoritv determines
such markets or market segments have ineffective competition_,~-
The above language read with sections 67(4)(a,-(c) of the ECA is in Vodacom's vlew
inconsistent with an interpretation of section 67(4) in which the requisite regulations
simultaneously prescribes, in the same regulatory instrument, both the methodology to
be followed for a market review process in respect of a particular market, and the
outcome of such process.
Date: 18 June 2010 -13 -
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Vodacom (pty) Ltd liUbmission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronlc Communications Act, no, 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Vodacom submits that the Authority has not followed the aforementioned two-stage
process in issuing the draft Regulations. Instead1 it has inverted the process, first
conducting a market review of the call termination market and then issuing the
Regulations. In Vodacom's view the process followed by the Authority is both irregular
and outside the scope of its powers for at least two reasons;
Firstly, the market review process conducted by the Authority did not take place
pursuant to any regulations and, to that extent; is outside the powers of the
, Authority under the ECA, The wording of section 67{4) of the Act does not
permit a market review process by the Authority outside of any properly issued
regulations (certainly, the informal Guideline would not suffice for that purpose).
Secondly, the draft Regulations themselves do not comply with the requirements
of section 67(4) of the Act in that they purport to combine not only the
methodology required to be followed for a market review process but also the
outcome of such a review in respect of the call termination market, including the
pro-competitive measures to be imposed on licensees found to have significant
market power in that market
In the circumstances, Vodacom believes that the draft Regulations, if issued in their
current form, would be unlawful and open to judicial review.
Date: 18 June 2010 - 14 -
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Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
PART IV
Detailed comments on the draft Reaulations and the Market Review document
A. DETAILED COMMENTS ON THE DRAFT REGULATIONS
comments are orovided Jn the same order and with the same numbering as set
out in the draft regulations (Notice 33121 of 2010)
1. Definitions
Vodacom notes that the draft Regulations contain a definition of the term
'Downstream markets' although this term is not used anywhere in the draft
Regulations but only in the attached Market Review document. Based on the
aforementioned, Vodacom recommends that the term 'downstream markets'
should be deleted from the draft Regulations as it is immaterial.
In line with Vodacom's comments under draft Regulation 6(2) below, Vodacom
submits that the definition of "Established SMP Licenseesn should be
amended so that it is not be defined with reference to 'additional pro-competjf:fve
remedies imposed~ Vodacom suggests the following definition:
"Established SMP !tCensee"means a licensee with SMP_ that adheres to the
objective criteria as set out in Regulat!on 6(2).
With respect to the definitions of "Mobile call termination", Vodacom submits
that for the sake of certainty, the definition should be amended by adding the
following words at the end of the sentence "at any location where there is
coverage."'
Date: 18 June 2010 - 15 -
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Vodacom (Pty) Ltd submission on the draft "call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
With respect to the definitfons of "Retail service" and "Wholesale service",
Vodacom submits that for the sake of legal certainty, the terms have already
been defined in the Act and therefore the definitions should be consistent with
those in the Act.
2. Purpose of the Regulations
Although Vodacom understands that the Authority used section 67( 4) of the Act
as,ba,sis for the purpose of these draft Regulations, Vodacom submits that as
these Regulations focus on the wholesale call termination market the purpose as
set out is too general and therefore should be amended to specifically address
the wholesale call termination market.
3. Market definition
Vodacom has no comments.
4. Methodology
Regulation 4(1)(a)
Vodacom refers the Authority to the comments under Part III:_ Overall
procedural approach to implementation of Chapter 10 and the two-stage
approach to be followed in prescribing sectio-n 67(4) Regulations discussed
therein.
Vodacom contends that the methodologies to be applied in a market review
process is required ~o ensure that the same methodology as set out in the
Regulations can be used for each and every subsequent market review as
Date: 18 June 2010
1019
Vodacom (Pty) Ltd submission on the draft ncall Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
different methodologies may lead to different conclusions. Furthermore, in order
to review pro·competitive conditions imposed on licensees subsequent to a
market review process, the same market review process and methodologies
need to be applied to be able to effectively review the continued need for pro
competitive remedies.
Based on the aforementioned, Vodacom submits that dra~ Regulation 4(1)
repeats the factors to be considered as provided for under section 67(4) of the
Act 'oµt does not specify the methodology to be used when considering these
factors (i.e. how?). In addition, it is uncertain whether the Authority intends to
publish new Regulations addressing the methodology used as the current
Regulation is not forward-looking in stating that" .. , the Authority has applied ... "
The current draft Regulation will therefore not suffice in setting out a
methodology for future market reviews and is insufficient to provide for a
consistent approach in subsequent market review processes.
s. Effectiveness of competition
Vodacom submits that this draft Regulation should be amended by adding the
words "call termination" between the words "voice" and ''service" so that it
reads as follows:
"Pursuant to regulation 4r the Authority has determined that competition
in the call termination markets is ineffective in the provision of both fixed
and mobile voice call termination services"
Date: 18 June 2010 - 17 -
1020
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
6. SMP determination
Regulatlon 6C2)
Vodacom submits that the Authority should specify the objective criteria to be
applied in determining which licensees are "Established SMP licensees."
Transparent and clear distinguishing factors must be set out clarifying how
"Established SMP licensees"are identified.
Th'er~fore, the definition of "Established SMP licensee"' in draft Regulation 1
should be amended accordingly.
In addition, the Authority must ensure that references to legal entities are
correct e.g. the legal entity, Telkom (Pty) Ltd does not exist and the reference
should be amended to read Telkom SA Limited.
In this regard, Vodacom further wishes to note that a legal entity that may be an
Established SMP licensee in one market may be SMPor even non-SMP in another
market; e.g. although the criteria used to determine "Established SMP" is not
clear, it is submitted that, Vodacom is not an established SMP licensee in the
fixed call termination market.
PRO-COMPETITIVE MEASURES
7. Access, non-discrimination, transparency
Draft Regulation 7 provides that all SMP licensees must comply with sections
67(7)(a),(c) and (d) of the Act.
Date: 18 June 2010 -18 -
1021
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Actr no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Compliance with section 67{7)(c)
Section 67(7)(c) of the Act provides for~
"a orohibition aqainc;t discrimination in relation to matters connected with
acces5r provisioning of services,, interconnection and facilities leasing."
As remedies are imposed in a specific market in order to correct an identified
market failure where it is found that there is ineffective competition, Vodacom
submits that these draft Regulations deal with the wholesale call termination
market, i.e. interconnection and therefore, !t is not justified that SMP licensees
should be required to also comply wlth requirements in relation to access,
provisioning of services and facilities leasing.
In addition, the distinction between the non-discrimination requirements in
section 37(6) and that of section 67(7)(c) of the Act are not clear. Vodacom
submits that the non-discrimination requirement in section 67(7)(c) .of the Act, as
a remedy, differ from the section 37(6) requirement.
As submitted during previous consultation processes, Vodacom re-iterate that
non-discrimination is Imposed as a remedy in other jurisdictions. In contrast, In
South Africa non-discrimination is imposed as a general requirement of the Act
(see section 37(6) of the Act), as applicable, in reSpect of interconnection.
Vodacom therefore contends that should there be no clear distinction behveen
the requirements of the aforementioned provisions, section 67(7)(c) of the Act
should be deleted from the draft Regulation, as It ls redundant.
Date: 18 June 2010
1022
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Compliance With section 67f7)fd)
Section 67(7)(d) of the Act reads as follows~
''an obligation requiring the licensee to publtsh in such manner as the
Authority may direct,. all such infonnat!on for the purpose of ensuring
t@nsparencv. in relation to-
(/) Access;. interconnection and fac1Yit!es leasing/ or
(ii) The provision of electronic communications network services,
electronic communiCatlons services or any other service offered by
the licensee applicable to the relevant market or market segments
at issue."
As remedies are imposed in a specific market in order to correct an identified
market failure where it is found that there is ineffective competition, Vodacom
submits that these draft Regulations deal with the wholesale call termination
market, i.e. interconnection and therefore, it ls not justified that SMP licensees
should be required to also comply with requirements in relation to access,
provisioning of services and facilities leasing.
As submitted during previous consultation processes, Vodacom re-iterate that
transparency is imposed as a remedy In other jurisdictions, in contrast with the
general requirements in respect of interconnection_ in South Afrita. Thus,
Vodacom contends that as the Interconnection Regulations provide for
transparency With regard to information the requi:ement to comply with section
67(7)(d) of the Act should be removed from the draft Regulation, as it ls
redundant.
Date: 18 June 2010 - 20 -
1023
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
8. Publication of a Reference Interconnection Offer (RIO)
Vodacom submits that the Authority's rationale for requiring established licensees
to publish a RIO also applies to non-estab[shed licensees, namely:
ensuring sufficient information is available to plan interconnection
requirements;
• ensuring that negotiations need not be started from scratch (thus not
unduly delay negotiations); and
ensuring that terms and conditions are offered on a non-discriminatory
basis.
Vodacom is of the view that publishing a RIO does not place an unreasonab!e
burden on any SMP operator and thus there is no need to exclude non
established SMP licensees from this obligation. Vodacom's view is based on the
fact that operators have already drafted standard terms and conditions for
interconnection which could be used as the basis for RIO,
Furthermore, although the Authority is not bound by. the EU Access Directive5,
Article 9(2) of the EU Access Directive states that~
"In particular where an operator has obligations of non-discrimination
national regulatory authorities [NRAs] mav require that operator to
oubfish a reference offer. which shall be sUtficientlv unbundled to
ensure that undertakings are not reauired to oav for facilities
which are not necessarv for the service requested, giving a
descriotion of the relevant offerinas broken down into
components accorclinq to market needs. and the associated
5 (Directlve 2002/19/EC)
Date: 18 June 2010 . 21 •
1024
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO, 33121 published on 16 April 2010)
terms and conditions indudlnq orices. The national regulatory
authority shall, inter a/fa; be able to impose changes to reference offers to
give effect to obligations imposed under this Directive.''
Based on the aforementioned, the Authority should consider requiring all SMP
licensees to publish a reference offer which may contain the minimum
requirements as listed in Appendix A of the draft Regulations. Such an
obligation will ensure compliance with the non-discrimination requirement as
well, ,PY clarifying associated terms and conditions including prices in addition to
the objectiVes listed above for requiring licensees to publish a RID.
Vodacom recommends that the obligation to publish a RIO should apply to all
SMP operators. Thus1 wherever the term "Established SMP" has been used in
Regulation 8 it should be deleted and replaced with the words "All SMP
Ucensees"'.
Regulation 8C7)
It is unclear to Vodacom what the rationale for requiring that interconnection
based on a RIO should be concluded within a period fifteen (15) days from the
date of the request. Vodacom's understanding, in essence, is that a R.H~. provides
the starting point from which to negotiate. Additional flexibility may be required
in commercial negotiations, where it may be desirable to agree to terms and
conditions that are more appropriate to the particular agreement, which may
also depend on the complexity of the interconnection service to be provided.
Depending on the type of interconnection service required extensive input from
various disciplines within the company as well as the relevant internal
Date: 18 June 2010
1025
Vodacom (Pty} Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
management approvals may be required by both parties to an interconnection
agreement.
Based on the abovementioned and with reference to Regulation 3(3) of the
Interconnection Regu1ations6, Vodacom submits that parties to an
interconnection agreement based on a RIO should be allowed at least ~
~ from the date Of request of interconnection within which to conclude
an agreement.
Draft Regulation 8(7) should be amended by deleting the word fifteen C15) and
replacing it with the words forty five (45).
Furthermore, in instances where licensees fail to reach an agreement on
additional timeframe (beyond 45 days), both parties may submit motivations to
the Authority for consideration in granting additional time Within which to
conclude the interconnection agreement based on a RIO, Therefore, in
conclusion draft regulation 8(7) should be amended to read as follows:
''Provided that all requirements in the RIO are met by both licensees, a
request for interconnect;on based on a RIO must be concluded within
forty-five (45) days of such a request for interconnection unl~s otherwise
agreed between the licensees. Should the parties fail to reach an
agreement on the additi'onal timeframe, both parties may submit
motivations to the Authority for consideration and ruling."
"Notice No. R.282 of 9 April 2010 (GG No. 33101)
Date: 18 June 2010 - 23-
1026
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
9. Price control
Regulation 9(1)(a) and Cb)
Vodacom accepts the approach of the Authority to set the wholesale network
cost-based MTR estimate on available and verifiable real cost data. Vodacom
further notes that there is still is a debate about what level MTR should be set at
to maximise the wellbeing of South African consumers (urban and rural).
In respect of the implementation date and glide path, Vodacom refers the
Authority to the comments under Part I: Glide Path.
Vodacom submits the follow!ng-
As the peak mobile termination rate has already been reduced from Rl.25
to R0.89 as of 1 March 20101 the proposed additional reduction to be
implemented by 01 July 2010 would effectively result in the
implementation of an immediate and verv sjgnjfjcant wholesale price
reduction which, as noted by the Authority, will have negative impacts on
the industry and the market as a whole.
It is therefore critical for the Authority to reconsi~e~ the proposed further
reduction of mobile termination rat~s for 2010 and Vodacom
recommends that the imolementation date for the first reduction
in terms of the glide path be moved to 1 March 2011 at the
earliest
Date: 18 June 2010 - 24 -
1027
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
Regulation 9(2)
Vodacom concurs with the content of this Regulation and the explanation given
by the Authority fn the Market Review document7 as to what the Authority
expects to be the outcome of the "fair and reasonable' obligation for non
established licensees as it results in symmetric termination rates. The Authority
has stated that:
' • , , 'Won-established licensees to charge a reciprocal rate with the rate set
for Telkom If these licensees offer a fixed service, and
Non-established licensees to charge a reciprocal rate with the rate set for
Cell c;. MTN and Vodacom if these licensees offer a mobile setvice. '8
However, as the terminology ''fair and reasonable" can be subject to
interpretation, Vodacom recommends that the explanation given by the Authority
for "fair and reasonable" quoted above should be included in this draft
Regulation.
Internationally it has been accepted that symmetric termination rates "contribute
to enhandng static economic effidency (limiting a/locative and_ productive
inefficiencies), investment, innoVation, regulatory certaiilty,. and lastly, overall
welfare. ~0
7 !CASA Wholesale call Termination Market Review for the period 2010-2013 Page 66 a Ibid 9 ER G's common position on symmetry of fixed call termination rates and symmetry of mobile call termination rates page 81
Date: 18 June 2010 - 25 -
1028
Vodacom (pty) Ltd submission on the draft "call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 {GG NO. 33121 published on 16 April 2010)
Regulation 9(4)
Vodacom respectfully submits that this draft Regulation grants the Authority wide
powers with no clear basis. It is unclear to Vodacom how the Authority can
reserve the right to make an Industry determination on price control based on
information submitted, without first setting the parameters to define the nature
and circumstances under Which the so-called information would be submitted
and what role stakeholders would play before such an industry determination
woulq be made.
Vodacom submits that this Regulation should be deleted.
10. Accounting separation and cost accounting
Vodacom submits that the word "and" should be inserted between (f) and (g).
Furthermore, Vodacom submits that cost accounting separation and cost
accounting regulations should apply to al! SMP licensees. However, the Authority
should have the option to exclude a SMP Licensee from these obligations based
on objective criteria set out in the Regulations to be prescribed.
In addition, for the sake of certainty, Vodacom submits that the words "in
relation to the wholesale call termination" should be qdd.ed at the end of the
sentence.
11. Keeping of accounts, records and other documents (reporting)
Vodacom has no comments,
Date: 18 June 2010 - 26 -
1029
Vodacom (pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
12. Schedule for review or revision of markets
Vodacom supports this Regulation as it creates certainty in the market as it is
clear when the Authority intends to start the next market review.
13. Effective date
Vodacom has no comments.
14. Contravention and penalties
Vodao:;:om has no comments.
APPENDIX A: Minimum content of Reference Interconnection Offer
(RIO)
Vodacom has no comments.
APPENDIX B: Format for submission of bi-annual market report
3. Format for the compliance of informatjon
Vodacom submits that should the Authority intend to issye Forms other than the
one provided with this draft Regulation, Vodacom should be given the
opportunity to provide Its comments in respect thereof.
Date: 18 June 2010 - 27 -
1030
Vodacom (pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO, 33121 published on 16 April 2010)
B. DETAILED COMMENTS ON THE MARKET REVIEW DOCUMENT
Vodacom does not provide comments on all sections of the market review
document however, Vodacom's failure to do so should not be seen as an
admission of the content thereof,
2. An assessment of the effectiveness of competition and the
identification of licensees with Significant Market Power
2.3.14.6.1 Large mobile licensees threaten each other
The Authority has indicated the historic trend in mobile termination rates, 1999-
2009, lo Figure 2.4 (page 43). However, the Authority has failed to indicate the
reasons for the change of MTRs that applied between mobile operators (mobile
to mobile calls) as well as, the historical trends that applied for interconnection
between fixed and mobile operators (fixed to mobile calls and mobile to fixed
calls). In the graphs below, the complete historical trend for mobile and fixed
termination rates are illustrated.
In 1994, nominal ratesr originally based on "sender keeps all r, principle, were set
for moblle termination. Originally, it was thought that traffic between mobile
operators would not be significant and would be more or less balanced. These
initial rates were set with the understanding that on~e. more information on
traffic patterns and call volumes were available, t_he rates will be renegotiated.
In 1998, rates were renegotiated because of high volumes, unbalanced call flows
and non-discriminatory requirements. To minimise the impact, the change was
phased in over three year glide path, from 1999 to 2001. Further negotiations
followed, which increase the rates from Rl.19 peak (R0.65 off-peak) to Rl.23
Date: 18 June 2010 - 28-
1031
Vodacom (Pty) Ltd submission on the draft "call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010) peak (R0.73 off-peak) in November 2001, and to Ri.25 peak (R0.77 off-peak) in
January 2005. The peak rate has subsequently been decreased to R0.89 for peak
mobile termination on 1 March 2010.
For fixed termination, rate increases were as follows: from R0.21 peak (R0.10
off-peak) increased in January 2003 to R0.234 for peak (R0.12 off peak),
increased in January 2004 to R0.25 for peak (R0.14 off peak), increased in
January 2005 to R0.27 for peak (R0,15 off peak), and finally increased in January
2006 to R0.29 for peak (R0.16 off peak).
Date: 18 June 2010
1032
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010)
History: Fixed to Mobile and Mobile to Mobile Termination Rates
:::1
o.oo 1 '"°"•M"'O•IO ... u>i r---------- j
I ______ _, ~-----__r--------
-----, ! .... 1 , ______________ ,
'"""'""'"'"'"" '~------'"' '"' "" ,.., '-'" "'" "'"
History: Mobile to Fixed and CST to Fixed Termination Rates ,~. j
1
::: JI ~ .,, ..... ,,.'",
""'""'""'I'"~ r' '·'·1 ---------'~ '" ]_ ___________________ '.:~:~::::'°""'' ~ _____ _,--------------------
----------\ _____ r----'~~~~-,-----··:----~~-~!':~~~~~~~ .. --'" i I
'·"j_ __ """ '"' '"'
Date: 18 June 2010 - 30 -
1033
Vodacom (Pty) Ltd submission on the draft "Call Termination Regulations" and Market Review document pursuant to section 67(4) of the Electronic Communications Act, no. 36 of 2005 in Notice 314 of 2010 (GG NO. 33121 published on 16 April 2010) Annexure 1: Wholesale Price COntrol Remedy Design (Page 87- 98)
1. Wholesale Price Control Remedv
Inflation
Vodacom notes that the Authority has not made any reference to inflation
adjustment in designing the wholesale price control remedy. Inflation has a
fundamental impact on the cost of delivering services including wholesale call
termination. Ignoring inflation will result in under-compensation in the recovery
of'eificiently incurred costs of operators and thus a flawed outcome which is
unsustainable in the long term. It is further noted that the current remedy is
designed using historical cost data which does not take into account any
inflation.
Vodacom recommends that it is critical for the Authority to appropriately consider
the impact of inflation In designing a wholesale price control remedy.
2.1 Efficient charge level - A blended rate or a sfnq/e rate?
Please refer to Vodacom's comments on page 7 under Part I: Glide Path.
Date: 18 June 2010
RESEARCH ICT AFRICA POLICY BRIEF SA NO. 2
South Africa's Mobile Termination Rate Debate: W11at the Evidence Tells Us
South Africa's (SA's) niobile termination rate (MTR) reductions of March 2011 and March 2012
have not, contrary to the claims made by operators, hurt the industry or led to higher retail prices, lower investments or retrenchments. VVhile end-user p1·epaid niobile telephony prices have con1e
down to s01ne extent, the prices are still high, and SA's MTRs are still far above the cost of an efficient operator. The regulator's (ICASA's) glide path is too slow and will not take the MTRs down to the cost of an efficient operator. As a consequence, South Africa continues to b~ among the 1nost
expensive countries in Africa for pre-paid mobile usage. Fair competition is needed in order to ensure a decrease in niobile tariffs, and above-cost MTRs are one of the main obstacles to fair competition.
RIAPoJicyBriefSANro22012 1 Novembek20l2
Retall price cuts SA still expensive Cell C lnwers off-net Retail prepaid mobifo P1·epaid mobrl- prices prices ldeplumy prices lrov~ remain high. So111li Cell C dropped ils off starfed to drop, but Africn's mobae affordn- net rates W RO.SS prr only since the 8Uol1.d bility i.s ranked 33ni mi1111te to match ils on-MTR reduc~im, which out of 44 African wun- 11et price,~ moll!' only moved the MTR dos~r tries s1<111e~d fer possible eftu the lo thecostofa11 dtenpest price m>ailnble · second MTR redudion efficient operator a1ui from dominmtt opera- (and whli::h was bri~fly a!!i;wed smaller p!"!Jt:TS !ors. SA's donn"nant matched by Vod~com). lo reduce their off-net pfoym nre stm able to prices. retain customers with
low on-net und high o -net lrices.
Introduction South Africans are beginning to see tbe benefits of competitive pricing pressure in the prepaid mobile market following the second mobile termination rate (MTR} reduction set by the sector regulator, the Independent Communications Authority of South Africa (lCASA}, in March 2012. SA is now, in late 2012, past the midpoint in its three-year glide path as established by ICASA - a path which is to take both peak ill1d offpeak MTRs down to R0.40 by March 2013.
' - 'Table 1: Moblle1ermmatian glide patli'in Rands '' -
~ - Peak \~ , , Off peak ""
!M•cci.20u_ i __ on; 065
1
1
~a:ch.201~ - -i- - - - 0_:;01 -- --- - 0_:52 :~arch_2~_3 ___ l _______ ~~oj _____ -~~ IAsymrnetncal tenrunation rates may apply, whereby operators with
'.I~ .. ·.eh •. n 25. % m· .. ·.rket. •.lrn·"···ro· u .. Id oh .. ~ ... up. to. 20% .. mo.re for. calls. j (they carried on their networks between 1 Marth 2011 and 28 Febru· ;ary 2012. Thereafter, the maximum premium they could charge fell ito 15%, andfinally,.mMarcli 2013, itw!1l fall to 10%.0nlyVodacom iand MTN have more than 25% of the mo:,\Je market, and only
['T_:~~~~~~-'.":?'.::'_ll:,an ~~'!i. '?f ll:'.: ~e.~.n\~!:_t: ___ ---· __ ··-- .. --· (~~~rc~,~~-~(29~0,20?-.~} ____ ... ___ ,,_ --·--- ----~-
8ta doubles up Telkom biggest win- Vodacom a net airtime "" beneficiary 81o inc1·eAsed its Telkom's ann11al nM Vadacom nelted nomiMI tariffs in terniirl~tion payment R66mi11Wn more from Seplember 2012 b!I/ (taminalicm revenue call i~rmiria!Wn in offered double-value on minus termination 2011-11 !han in th• airtime rec!i11rges, expenses) w:is previrus year, despite improving SA~ R1.%i!1ion less in the d11iming, when the 11fferr.Uib1Hty ranking lo 2011-11 fimmcial year MTRci:tswere 19th out of44 in terms fhau in 2010-11, mmounced, that it of che~pest product i1t con!radicting ils would suffer <I
tilt country. complaints about Jhe R500mil!ion net /o;s. Impact of MTR cuts on 1";; bottom line.
lCASA's initial downward adjustment of the lvITR - the rate that operators charge eacli. other to tenninate calls on each other's networks - in March 2011 did not have the intended outcome of a reduction i.i.1 prices for consumers. Prices remained high in comparison with other African countries. Out of 44 Africal1. countries on the Re.search ICT Africa {RlA} mo· bile prepaid pricing index, South Africa's ranking {based on the cheapest product of the dominant operatcir) worsened between Ja.'"1uary. 20_12· and Septerr.ber 2012 from 30th to 33rd position. Although in terms of the cheapest product available in the Country, SA's ranking improved from 32nd to 19th place for the s.ame"period (see Table 6).
Call Termination Regulation The rationale for regulatory int"ervention in MTR pricing is that call term1nation is a monopoly. V•/h:ile call origination C<ll1
be made competitive jn numerous ways, there is simply no alternative to terminating a call on the network of the opera
tor which owns the number a caller is trying to reach. Termination rates above the cost of an efficient operator distort tlw market and produce anti-competitive effectS: Given that mobile tennination is an inherent monopoly, regulators have m' alternative mechanism besides adjusting termination rates ii 1
line with costs - if such adjustmen: ;re if!~rf--
/ v "r .
1035 ' SDUTllAFllltA'S MCIBllETEllMltlAllON RATE bEflATE:~'ill!ATmE £UIDEllCETlllS US
tors. Determining, costs can be done by a regulator through a benchmarking exercise of termination costs, such as was lUl·
dert:aken u, Namibia in 2009, or through detailed cost studies such as those undertaken in Bot:sWana, Kenya, Nigeria, Tanzania and Uganda.1 There is now overwhehning international evidence from across tbe world that cost-based MTRs encourage competition and more affordable pricing.2
Cost-based termination rates remove market distortions and provide efficient investment incentives. The net effect of fairer competition is lower costs of communication, better services, and more equitable returns on investment for all operators (Stork, 2011, 2012). In support of retaining high termination rates, dominant mobile operators have argued that lowering MTRs will lead to increases in access and usage prices,s resulting in fewer people being able to afford communication services and lower profits that limit operators' capacity to invest in network extension and upgrading.
Incumbent operators are quick to point out, and the media to report, the loss in revenue suffered due to termination rate cuts, while generally omitting to report on inrumbent operators' cost savings from reduced termination paymEnts. Operators receive termination revenues from, and pay termination fees to, other operators. The question is thus not whether an operator has le~s revenue from termination after MTR cuts, but rather, how the net profit or net loss from termination has changed and how this affects the operator's overall performance. For example, the annual net profit from termination of South Africa's largest mobile operator, Vodacom, increased by R66rnillion, despite a reduction in its incoming termination revenue, after MTRs were cut by I CASA (see Table 3).
Vodacom Vodacom's CFO Rob Shuter was quoted in :May 2011 as saying that Vodacom would lose R1.5billion in revenue, and would incur a net interconnect loss of RSOOmillion, due -to the .March 2011 MTR cut imposed by ICASA. In reality, Vodacom's annual interconnect revenue dropped by R693million, while its termination rate expenditure decreased by R759million, re" sulting in an improvemmt of R66million in Vodacom's net interco_nnect position.
Vodacom made R1.lbillion net in the 2011-12 financial vear (ending March 2012). Given that its operating profits, EBITA margins, subscriber numbers and traffic numbers lll'.e an up,
------.-- . ' - :~1~~~ 'TheTogulators ooncemod wi>uld do well 10 •hare tbe cosullli oflbose <llldios wilh other ""gulato.,, boeou•e in vii~y;_Q(ffo;0J1l environments therc<ull< have !ended to bov_~ry ·~ ~~ . 1So~ foraamplo, Stork (2012) for OECO eountrios.
'Tni• ls often H'1ked 10 the waterbut effect anci !he two-slcled m•rke( .,-gumon~ Examplos include: bttp·/6w~"' odnfonc •pmlcgntcptlifomlyod•fo!!cli bn i•lp bl!r ppljcylp<i!icy paperslpnbUc pQljry ""Tit< 7 pdf, and .h!lp:l1.sJ.akebnlrlers ofcom prg ,,kihj,or' ,,.,1,orsi1lt•lipps/\l•hllle"l•lreqinnSe•C od•frinr 'PM [aoce"od 20 Nov=bor 2012).
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Vodacom was incorrect in its prediction in March 2011 that MTR cuts would force the operator to retrench workers (Mawson, 2011).
An indirect measure of prices is the link between average revenue per user (ARPU) and minutes of use (MOU). Vodacon1's prepaid ARPU declined in 2012 while its prepaid MOU increased, which indicates an implied per-minute drop of R0.15. This measure is, however, only a very rough approximation since ARPU includes many other revenue streams in addition to voice such as data/SMS revenues.
Telkom Strangely, the incumbent fixed-line operator Telkom, which has been at the wrong end of asymmetrical termination rates for nearly two ,decades, also complained about a loss in termination rate revenue through MTR cuts.4 In reality, Telkom's total interconnection revenues increased in the 2011-12 financial year . .>
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MTN A further (frequently overlooked} fact is that termination rate payments <ITe payments betvveen operators. Lower termination rates mean only that net payers pay less and net receivers receive less. No money is taken from the sector; it is a zero sum game. JvITN, for example, is a net receiver. Its net profit from caU termination (revenues in excess of expenses) for South Africa decreased from R1,085million (in its financial yea:r ending December 2010) to R741million (in its financial year ending December 2011), a decrease of R644million and not a loss of R2.5billion as claimed in May 2011. Its termination revenue decreased by R644million in 2011, while its termination expenses dropped by R300million, leading to a net reduction in termination revenue of ot:1ly R344million in 2011. And given the large number of subscribers on its network (second only to Vodacom), MTN remained a net receiver of termination rate payments in 2011.ii MTN's Capex, revenue and EBITDA margins all increased in its financial yea:r ending December 2011 compared to the previous financial year.
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l!Eml Intezconnection revenue Rands _million l 6,56~t 5,924 -6441
l;~~~"·~~==~;~:::-1 ... s~~-''.;;, .. · -3~ l!"'_:!_.~_t=~:~~=::_~~h-~~----- ---.. +- .~'.?~5..i---·-?-~!-· -~3~4., i~?XinR<:n~_i:i'l]:i~n_. .. ·t--3~~0·~1---_g~J---- ... ~2~ ~R.-'.'vei;~e. ~ tni\lio~. .--~·. -".'.: .•. • .. ".ii~·;~;~11_~-~~.:f~.·.l ~t~~~~~-~~:~·---·~--· I 1521 134 -~s.j f i;:~~i::r?u~;ri;;(ARPU1M~~;-+~---~~t--~.~·f·~~-~~·i 'Rands ' ' < ! · . ~~;;:c~~T,~·(i~~~-:~:~=~:-.. -.--- .. J ___ ,. ___ _J_, _ ____, --=~"! MP.-J's implied per minute price (ARPU/MOU) decreased by R0.20, sintllar to Vodacom's implied price. The estimate for MTN is based, however, on blended ARPUs (because prepaid APRU and MOU are not reported separately: from contract/ postpay APRU /MOU by MTN.)
Cell C and Neotel Becacrie they are private, unlisted companies and nondominant players, no public information is available for Neotel and Cell C in relation to the impact of WR cuts. These operators were.not willing to divulge such information - even in generalised form without actual figures. With Vodacom and MTN being net receivers, Vodacom even receiving more in
:::::::::;:::::: ~:~: :: ::1:::: ::::::::~;::~.::;:~:::::::: :::·::::: ::::;:'.::: ~~:: ::~, :: :~:::~:~~:v::.:~~2011). Althls time, Tolkom had sold its lucn>tivo •h•roilolding in Vi><loeom (which had enjoyed •lgnific:anlrc:'le~ues focyoaro from •omc of the bigh<St (osymmolricnl) tcrminotlon ''""'in the World), _nncl now hoC l:6 new mobik ;ervice Sui.. Sla did roam.go to •=r•, from theteguh.tor, nn a>)'mmetrical tennin&tian n>t<. togothorwilli Coll C, for it> terrni?to "en•5 !\le dormnonl opero· tmoVod•com •nd MTN. (.ece"ed 20 November 20l1). f I \ ~ 'Soehttp·lllrn""T"' cw/Jnyel!Qrslf"nJnnr!rrls•forn •ntsh,. inttrr1"d r:pm17Q]' prlf, p. 38 (acces•ed 10 November 2011). JV • r· C -~
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2012 than in 2011, and Telkom being a net payer but' paying less in 2012 than in 2011 and 2010, one can assume that Neotel is a net payer.7
Link beh\Teen MTR and retail prices It is dear, therefore, that there is not, despite what is often claimed by those defending the s/1<tus qua of arbitrarily hlgh termination rates, a uni-directional link between termination rate cuts and higher retail rates, It was thus ironic when the new CEO of Cell C (and former CEO of Vodacom) Alan KnottCralg, having just slashed the price of prepaid mobile calls by 32% following the latest termination rate reduction, claimed foat such a link existed. Jn an interview on Radio 702, KnottCraig claimed that lower mobile termination rates typically result in higher retail rates, and not lower mobile call rates. "I know that it is counter intuitive, but it is what happens," said Knott-Craig.s
The evidence, a11 outlined in tbis Policy Brief, is that Vodacom's interconnection revenues increased due to MTR cuts, and Telkom had to pay less net, while MTN received less net. According to the 'reyenue-replacement-based atgument cited above, Voci.acorn and Telkom should have dropped fueir retail prices while MTN should have increased retail prices to make up for lower interconnection profit COJTl.pared to the previous financial year, The reality was different, demonstrating very clearly that operators are affected differently and therefore react differei.1tly. The eviden.ce shows that Telkom, for exam· ple, passed its MTR savings completely on to i.ts customers, by lowering the cost of fixed-line-to-mobile calls (Telkom, 2012), as did NeoteL9 ThiS partly explains the higher termination rate profit of Vodacom. Vodacom received 230 million more minutes from fixed-lines in the 2012 financial year compared to the 2011 financial year (Vodacom, 2012b}. This is an example of how one operator's net termination profit can increase due to ather operators' decisioru; to pass on termination cost savings to their users.
Impact on Retail Prices The OECD basket methodology used in this paper is based on the OECD's 2006 basket definitimi.s (OECD, 2006). The OECD released new basket definitions in April 2010 (OECD, 2010). One key difference between the 2006 and 2010 mobile basket definitions was the range of operators included. The 2006 definitions included dominant operator Is that together had 50% market share. The 2010 definitions included the two largest operators. Thus, basket analysis of those countries with only two licensed mobile operators would automatically include all operators.
The basket methodology has strengths and weaknesses. Strengths include its ability to compare the products of an op-era.tor, to compare cheapest products across operators, and to
compare cheapest products available in a country. The basket method thus allows benchmarking of countries, operators and products, and applied consistently, it allows coru;umers to compare the products of a single operator and between operators. The weaknesses of the basket method indude:
• The OECD methodology of 2006 only included dominant operators, and the 2010 baskets included only the two larg~ est operators. The weakness in this focus on dominant/ large operators is that price changes following regulatory interventions would mainly be expected from small operators that attempt to gain market share through lower prices. On the other hand, focus on dominant/large operators reflects what people actually pay better than comparing the cheapest product{s) available in a coµnhy.
• OECD baskets of mobile packages do not take into account the number of people on each package and the actual minutes of use for each package. TI1e reality is that no one user is "average" ai.1d thus actual consumption patterns of indi~ viduals might be poorly be rel:lected by the basket approach. An alternative would be a web-based tariff calcula~ tors in which users can input their actual consumption patterns.
• The same on-net/ off-net basket is used for all operators, in spite of the fact that subscribers to smaller aperators are likely to have different typical on-net/ off-net ratios to those of larger operators.
In an effort to compensate for some of the weaknesses just out14ted, the analysis provided in this paper was based on application of the 2006 OECD basket definitions to all operators from 53 African countries, including all prepaid products. The data related to 342 mobile prepaid products from 188 operators from 53 countries, as collected by RIA from January 2010 to September 2012.10 Table 6, as in the previous policy brief, displays the results for 44 countries. This datti. collection over more than a year allows the comparison of the cheapest prepaid product available from dominant operators in a country with the cheapest prepaid product available across all operators in the country - thus capturing the degree of pricingpressure competition in each courrtry studied.
South Africa performed poorly in the January 2012 price comparison, ranking Only 30th in terms of the affordability of prepaid Il)iJbile products .from dominant operators. The cheapest produCt from Vodacom (dominant operator) for the OECD low-uset basket had a price of RBl.3/USDll in January 2012 (the Prepaid PJl Day rate per minute), compared to only USD2.4 in Mauritius. Meanwhile, for the cheapest prepaid product in the country across all operators, South Africa only ranked at 32nd in affordability in January 2012. The cheapest products were from. Cell C's EasyCli.at 99c offering, at a tariff of R0.99 per minute.
'Thfa highlight! !he need forlCASA to C<lllcdaetu>l figures for ail interconnection ro:ven11os and payments from opora,lbi,,!f,;, standardised time poriods, in ordo:- ta doto.-minc exactly d>e im~t of m:mination me outs.
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ICASA's 1ITR cut o_f March. 2011 did not have the intended tor worsened between January 2012 and September 2012, outcome of creating a fairer competitive environment and a dropping to 33rd position (see Table 6). reduction in retail prices for mobile subscnbers. Cell C, which as a later entrant into the market (after Vodacom and M1N) has, together with Sta, enjoyed asymmetrical termination rates since the introduction of the glide path in March 2011, reduced its prices in September 2011. By lowering on-net prices to R0.99 per minute via its 99c product, Cell C became the cheapest in the market. However, the other operators withstood this pricing pressure and retained their prices.
Pricing pressure did come after the second termination rare cuts of March 2012, when Cell C slashed its prepaid off-net and fixed-line rates by 32% to R0.99 per minute (previously only on-net prices had been at R0.99 per minute) while retai.J.1· ing per-second billing. Vodacom immediately followed suit with a promotion offering the same price of R0.99 across all networks as one of its prepaid products (called Freedom 99). This was presumably a cautionary step by Vodacom ·designed to test price elasticity among its own subscribers. Vodacom withdrew the product after a few months.
8ta is, in November 2012, the cheapest operator in South Af
Figure 1 shows that the dominant operators M1N and Vodacom kept their prices unchanged in 2011. 8ta, the latest entrant into the market in October 2010, Was the cheapest opi;rator in the country until August 2011 when Cell C, which has only managed to acquire 10% market share since it became operational in 2001, introduced its aforementioned 99c tari.ff.
However, dynamic pricing as offered by MTN and Vodacom is difficult to track for an outsider or regulator. Changes in discounts grai1ted would not show in RIA's prepaid pri.ce comparison, which is based on advertised tariffs. MTN, for example, states that its on-net prices may be 4iscounted at up to 100%, but it does _not specify·which discouni:s are ava)lable for off-net and.fixed-line calling prices. RIA thus assumed that across Africa, an average discount of 30% was given by all dynaU.ic prj.cing products from all operators, for on-net as well as·off-net and fixed-line calls and also across peak, offpeak i!Ild off-off peak time periods. This assumption may be high for on-net but low for off-net discounts. It may also be high for off-off~peak discounts and low for peak discollr\ts.
rica - not based on its tariffs but on its provision of 100% free However, in the absence of any better information (MTN airtime for every recharge (i.e. a RlOO recharge gives the user opted, for example, not to discl~se actual discounts to lUA), R200 airtime). It remains to be seen whether this will be a these are the best and fairest assumptiom that can be mad~ temp:orary promotion or a long-term feature of 8ta's packag- ( d 1 ) ing:·Regaidles"s, this offering had the effect of moving SA's and equally applie to al operators and countries.
ranking. h_l.forms of the cheapest.product available in a'coun,. The implied price comparison (ARPU/MOU} indicate~ tha try, up to i~th place in mobile prepaid telephony affordability both Vodacom a..-id MTN granted better discounts for theiin the September 2012 ranking (see Table 6). Meanwhile" SA's dynamic pricing products in the last financial year compare(
ranking in terrns of cheapest product from a dominant opera~ to the previous year. tJ ~ A ,j!) ~
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The available. evide~ce on mobile prepaid pricifig in South Africa demonstrates that the dominant mobile operators, Vodacom and MTN, are sufficiently entrenched in the market as to not be significantly wonied by the price-rutting efforts of late entrants Cell C and 8ta.
However, and more importantly, none of the prepaid mobile prices has increased since March 2011, despite two MTR cuts, demonstrating, at the very leasl; that there is no "waterbed effect" (i.e. a reduction in termination rates resulting in an inc.-ease in retail rates).
Operators have argued that it is flawed to compare different countries without comparing quality and coverage, arguing that South Africa has some of the most advanced networks in the world and extremely high popuiation coverage. n VVhile these assertions are true, it is also true that other countries with much lower prices are enjoying extensive national coverage and latest-generation networks with the help of proactive regulators, engaged governments and booming economies. Movicel of Ango1a12 and JvITC of Namibia13 were the first operators in Africa to deploy LTE, in April/May 2012, followed by Mauritius's second-largest mobile operator, Emtel, launching its commercial LTE service at the end of May 2012, and Smile Communications in Tanzania launching corrmercial LTE service in June 2012.
Conclusio11 The belated and insubstantial MTR reductions in South Africa, initially thtough political pressure rather than cost-based regulation, have failed to produce the positive competitive outcomes witnessed in countries such as Mauritius, Kenya, Namibia and _Ghana. In South Africa, dominant operators have been able to withstand pricing pressure because the MTR reductions have apparently been too small to allow marginal late entrants to sufficiently undercut incumbent operator prices.
The cases of Namibia and Kenya, where significant MTR reductions have occurred, demonstrate the positive effect on retail prices which can occur as a result of pricing pressure on dominant operators. Meanwhile, .. the South African case demonstrates that the pass-through to consumers of MTR savings is not automatic, and that relatively small reductions in termination "rates do not provide new entrants with sufficient room to compete, Le. to put their off-net prices in competition with the on-net prices of dominant operators in order to attract subscribers to their smaller netw·orks. Only MTRs set at the costs of an efficient operator will lead to the dynamic competition, with all its benefits for the consumers and the economy, witnessed in Namibia and Kenya.
On the other hand, mobile retail prices in South Africa have "certainly not gone up to comp-ensate for losses in MTR revenues - co!itrary lo what the regulator IcAsA was told about -the unintende<;i outcome_ of termination rate reductions.
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Moreover, the MTR reductions have not pushed Vodacom or MTN to the brink of bankruptcy or into worker retrench" ments, Both did better in the last financial year, compared to the previous year, in all key performance areas - and should in fact be basking in the knowledge that they have grown the mar\<et
The case of South Africa, as in many other countries, shows that there is no uni-directional link beMeen MTRs and retail prices, contrary to the claims of those defending the s!atus qitD
of arbitrarily high MTRs. The evidence in South Africa, as elsewhere, is that the setting of mobile retail prices is not primarily a question of revenue replacement but rather one of profit maximisation in a competitive environment where the choices of one operator influence the :revenues and profits of another. 'Ihe erroneous argument sold to regulators - that termination rates and retail prices are linked through a twosided market, and that reductions in termination rates will result in an increase in retail prices - is not ~upported by the evidence.
References • Independent Communications Authority of South Africa
· (ICASA) (2010), Call Termination Regulations, Govenime11t Gazette No. 33698, 29 October 2010.
• I CASA (2011), Practice note, 2 February.
• Mawson, N (2011), "1Wo rr.ore years of interconnect pain", ITWeb, 17 May, available at: httP' I lwY..'WiWeh mza ljndex.php?o;ption-com content& vjew=article&id-43718:two-more-yearrof-intercm1nect-pai n&catid-118 (accessed 20November 2012).
• :MTN (2009), ''Final audited results for the year ended 31 December 2008", pp. 14-15, available at: h!fy: I fwww.mtn.com (Inyestors /Notices /Presentations /A R present;:tjgn 2008 pdf {acces.sed 20 November 2012).
• MTN (2010), "Final audited results for the year ended 31 December 2009", available at httF I /w'Vl'W.mtn.mm /Investors /Notices /Presentations /;pr e<:entatign 2009.pdf (accessed 20 November 2012).
• MTN (2011), "Final audited :results for year ended 31 December 2010", available at: http·/ / www.mtn corn /Inyeators /Notices /Presentatjons far
2010 prr;sentatjon pd{ {accessed 20 November 2012).
• MfN (2012), "Final results for the year ended 31 December 2011", pp. 12-13, available at: htt}_y / /ww;.y.mhi corn /Inve .. tors /Notices /pre.,gntatigns /;pr esentatign pdf (accessed 20 November 2012).
• MyBroadba11d (2012), "Vodacom promo ended quietly'', available at: http· //mybrnadband co za /new<>/cell11!gr/57265-yqdarom -99c-prdmo-ended-qnfotly.htm1 (accessed 20 November 2012).
• Organi~~tion fur.Economic cb-op~ation ~Development·(OECD) (2006), Revised DECO price benchmarking baskets 2006, OECD, Paris.
• OECD {2010), Revised OECD price benchmarking baskets
20101 OECb, Paris.
• Stork, C. (2011), "Mobile termination benchmarking: the case of Namibia", info, Vol.13,No. 3, pp.5--31.
• Stork, C. (2012), ''The mobile termination rate debate in Africa'', info, Vol. 14, No. 4, pp. 5-20.
• Telkom (2011), "Integrated annual report 2011", available at https: ! /sec11rel telkom co za fapps static fjrlpdf/ financial /pdf/TglkomAR 2011.pdf (accessed 20 November 2012).
• Telkom (2012), "Group annual results for the year ended 31 March 2012", available at https: ! /secure) .telkom.ro.za /apps static/jr/pdf/ financial lpdf!Ammal Re.SJtlts Presentation 2012.pdf https: I fsecurel.telkom cq.za /ir/financial/am1Ual-zy;;µ1ts-2
012/financial-performance html (acC:essed 20 November 2012).
• Vodacom (2012a), ''Prelimiruiry results for the year ended 31 March 2012", available at: http• //wwwvoclamm com/pdf/armual reslJlt,s_L~
snlts 2012.pdf (accessed 20 November 2012).
• Vodacom (2012b), "Annual results presentation, 31 March 2012", p. 35, available at http:/ /wwwvodarom comfpdf/annua! msnlts 'prr:Sentatj on 2012pdf (accessed20November2012).
For more informatio11, contact: Alison Gillwa/d agillwald@rgiearchTCTqfrjca net Christoph Stork crtm·k®reseqrd1[CTqfijca.11et Tel: +27 (0) 214476332
Integrated report For the year ended 31 March 2012
Market overview
Economy The sub-Saharan Africa economy Is
expecte<l t<:> grow at over 5%1n 2012. Thlsrate of growth will largely depend on whether global growth of 4% can be sustained. Falling exports and a spike In food and fuel 11rkes could also
limit growth Jn the region.
SIM penetration Jn South Africa
132% Mobile communications are a key contributor to economic growth. SIM penetration in south Africa stands at dose to 132%, <md below 30% In the rest of our markets. There Isa real opportunity for us to grow SIM penetration In our lntematlona\opernt!ons ;md thus contribute to their economic growth. Averoge population growth In these countr1es Is estim-ated at 1 B million people over the nert flveyears.
Current Internet penetration
13.5% Current Internet penetration in Afrle<i Is 13.5%. with the global average at 36.1 %. In our markets. South Africa has the highest Internet penetration at 13.9%, with our International markets ranging between 4%to 11%. lntemetpenetrotionls expected to accelerate fast acroSH Aflica for at least the next five years. Mobile broadband's abiUty to leopfrog traditional technologywfl! play a big part in this. gMng small Informal businesses the opportunity to enter the formal economy.
Competition
Competition In South Africa ls getting more Intense, especially in data. Altho1.igh price environments In Tanzania and ORC Improved In the year, we expect greatercompetltlon to come from new players entering our markets.
In South Africa, competitJve pre:;sure played a big part In us lowering our effective i>riclng forvo!ce and data.
r~o1 \•r m61~ (>!", p<i~np '~ad t~r; L~ co;nn~Kl~l ,.,.,,e·1c
Competition in the South Af~can enterprise marketlntenslfied with the entrance ofa fourth mobile operator, white a thlr~ operator Launched In Mozambique and we
are expecting a new playerto launch In DRC In the year.
:·:·:: :°.'.'.''·.· ,··· ..... :' "> we iiri; seeing 9rOW1n·g· Coitip'etlticiii'frOnl r1ori,fradit1ofu;l playefs_s't.idi as·hands'et manuf acture"rs, :rnte"met· service proVrders, softWare coinpiihles <i.hd converged commun!catlonS provldei's. especlall)I' hi th"e
form of servlCes thath<indle messag!rig an~ vo1.ce Over data·connectlons.
Anancla! Institutions are also weighing fn. as many of our products and services are Increasingly overlapping. Competition will keep drMng prices down, meaning· that we v,i!llneedto dtfferenllote through greater network capacity and better service quollty.
1042
Regulatory
Regulatory focus areas are mainly on spectrum, the Consumer Protection Act ('CPA') and mobile termination rates ('MTRs') In So\lth Afrlca, whl\e
Internationally the focus Is customer registration and MTRs.
SouthAfrka Licensing of'"high-demand spectrum" (2.6 GHz and 800 MHz) has been postponed by kasa to allow the ministry to comDlete an ICTpollcy review. Vodacom contlnues to engage with both the regulator and the ministry on this matter to find a solution that would be beneficial for the country and Group.
The National Consumer Commission ('NCC), the regulatory authority tasked with enforcing the CPA, has Instituted lrivestigations Into the communications sector. The NCC undertook an Investigation into the terms and conditions of the oirtlme agreements. To comply with the CP!I. we have amended our customer airtime agreements and have distributed the amended agreements to our customers. The NCC nevertheless Issued a compliance notice against us ond the National Consumer TMbunol is considering the validify of the NCC"s comp!i<mcenotlceand will make a ruling on the matter In due course.
Customer registration came to an end on 39 JUne 2011. At this date apprw:imately g53 OOO customers had not r~glstered and we were obliged to lock their SI Ms. Of these, 537 OOO were disconnected during the year, RICA ls nowb•$iness as usual.
The MTRs were further reduced by 23% and 20% for peak and o ff·1>ea K respec tlvt:W on 1 March 2012. The last reduction according to the agreed glide path wm be on 1 March 2013. lcasa will then assess the impact and decide on' way forward.
1043
Commercial review
Commercial performance was strong across all our geographies, underpinned by both our brand refresh and the good headway we made in building more sites, extending our distribution reach and offering greater value.
1 Reaching m6re ., ' customers
We hove 47.8 million customers on our network, adding 11.0 million customer;
in the year.
Of this total, 6,1 milli~n customers were added tn South Afrka. with 4.9 mmion customers added Jn our International operations.
In South Africa, customer growth could be attributed to ourvalue-addlng promotional offers and uptake of ourlow·costhandset deals, as well as our distribution channels' specific focus on under serviced areas. We also saw encouraging growth In ow
contract customer base.
Internationally, we have restructured our pricing and rolled out more sites, making our services more affordable and occesslb!e. With SIM penetration across our International opera~ons ranging between 21% to 57%, ther~ is still great opportunity for customer growth.
In South Africa, the growing number of lower-income customers together with reduced MTRs meant that ARPU was
down 1~.2%. More stable prklng In key markets incre;;ised ARPU In our lnkrnat;onal operations.
2 Giving more value
The average price per minute across the Group dropped 7.0% from last year, mainly due to competitive pressures in our markets.
In South Africa there is ever-greater pressure for us to bring doWl1 data prices. Through
so
headUne price cuts and promotional offers we reduced our average prl<:e per megabyte rMB~ by 18.2%. Our promotional offers brought down our effective price per minute
In South Africa by 13.6%. Some of these value offerings Include Night Shift. with great uptake during the year and Voda~om 4 Les>, where 17 million of our prepold customers are nn dynamic pricing gMngthem discounts of up to 100% depending on the network capacity and utilisation Jn the area they are In.
In our International operations, prldng has Increased In some rnorkets after r~edlng to keep prices unsurtainobly low for several years to be compeUtlve. In the DRC, the regulator set a mlnlmum price at US$0.08 on 1April2011 to address congestion and quaUtyproblems, which Is ei:pected to remain In p\ace unm 2013. In Tanzania all operator.; increased their pricing by around 20%, while In Mozambique we Introduced lower prices and one simple pricing plan _effective anytlme for calls to any network. In Lesotho, we reduced prices by 5.0%.
3 ·More 'a:ffOrd~b[e; more. capable·devfceS
w~ sold a record 10.2 mlUlon deVices ln the year, up 17.3~. With Vodafone, we have worked to lower the prices of devices and together with other Vodafone operator\' we help in developing low-cost devices. We often get access to the newest smartphones first.
In South Afrlca, there are over 26.1 million acUve deVices on our network of which just over 20% are 3G capable. Handset sales in South Africa were over 9.7 million In the year, compared to 8.1 million in 2011. Of these handsets, 23.1%were smartphones
nnd 16.7%were ULCHs which sald for under R100.Some 2.2 miUlon smartphones wereso\d, of which 64% are Blacl\Berry~ devices. This brings the number of
srnartphones active on our network to 5.1 million, with more than 1.8 million activated during the year. Making Inroads In handset sales In our lntematlonaloper.itlons ls made difficult due to a nood of cheap low-quality de>Aces. That said, we made good headWay In Mozambique and Lesotho, where we manoged to increase sale> by50%.
4 Mo·re · d lstrfbutlon ·reiiC:h
We distribute mostly tllrough trade partners who sell servlr;;es on our behalf. Our dlstrlbuUon can be broken up Into Indirect channels, which make up about 50% of our distribution footprtnt, with the
remaining channels being Internal or direct channels. Indirect chomnels Include our national chains, franchise stores and Independent service providers, as well as
informal distribution channels such as wholesale dealers. Our on!ine channel and.call centres'i.ni direct channels.
Vodacom Business's direct sales team sells mobilevoke and data products and converged services to business customers.
During the year we brought new trade partners on board, which Improved our distribution coverage. Our Group distribution reach now stonds ;it well over 1 OC OCC points of sale, which Is a great competitive advantage. Through our development model, we help some of our small Informal traders become dealerships, who can then go on to become fully-fledged fronchlsees. This development process Is linked directly to sales performance.
Review of results
Overview WE .'re pl~~M~d to re1:,ort rvn·r~ result> for the si>:-rrn;nth period In 30 June 2013. 'lhe re5dt> re~~tl o cNllr.nging npero\Crg envl1onment given the 51J1;;;iln~d glo~1I e<:on.;,11,ir. >lowdown, hi<;ihl)' r.<lfnPi'tltlve mobile rn<1rk~t.; ~nd regul:it.o•)' pre:;sue-., which n~ve s~en ov~1<19e. V<J•(:e t"l:ls a.;ra;;1o~r1n~~1ct:; foll 29,5% yE01-m1-y~or troYJ in US lloll~r terms. De>r,ite tl'""' ch.1lleng<:i. oui iul.istontiJI inv~ment In netv,'Ct' irflo:tn.1Ll•J1~ and 1uiJu>l ,ut;iu:lx:c 9rr;i,~1t1 porition UsV.'~11 for 1rnpro'-"':d u<<J<ln;c g•<JWlh.
Qverche 1i,-,t .,;,· 1,-,9r.\h1 of 20i3.GM1psul'<(r•t~r; 11creo>~d ti..IM, 1~ 20t,5 :r1'1l:cn.suppo<te.d bvrnr.il)('(i~ve otfo1n•Ji ~nd iw":~><od ndw1:>1~ co;)3d;y_ /.i il'e end o' July. ~l~ Group •~t:nrdiO:l'I ~ tmol oi 20\J rnil~on
s111J~wbe1,; ol1er adjc1'(1r.~ foe \he 3,i rr.illiDn rfacon11<.'f.nonc :,1 rji~e1io rel~\€d 1,l the l'<W1damry l\lb~oibei · riogill.alJr,n prr.grar11r~e whl,Ji do1.::0 vn 30 J~r1t 2Ql3_
,qtli)MCcl r:t:">'enue ~,lr 1he >ix rnor,th •ncrea1ed ~,3% l'orgon1c rc:'<Jnl1C up U>%J, dc;p~~ L1~lr.~ 11~901ivtly rnp;ictcd by \h~ r;mff cull 111 both Ni9~:!u Jnd Soutl1 1'1rlvJ_ -:h~ 'l.OITJ~ OpCr; i::I~,,_~,· ilnd the ·sni~ll OpCo
Ch 1:;i:~r'r~pc1wd a oolld 9.7% ;ind 24,7% Yo\' 9roMh ,n 1even\•e re>-pOl':iivefy·, The rep,'lrled iir..,-ncial result> w~re positively~ffKl<-d by the 16.3% d~clin~ In •.he ;,v~rnge cand 'leri111 US doll;;t 1a1t.
MlN ~Jige1ia cominued lo 'how Ci:.>1\>r>ten\ month-on-month impove.m"1m in its Wler;;ticnal 111ellic>. Kevmue perfcrrr.ance, hcwe-.'EI. WIJO lrnp~':tcd b)' \hf,,10% reduction in "'obile teirnln,Jtlon 1"tr.~ eff~<:liw I Apnl as well al by the ttmpordry n~twmk Gi>conner;tion,; in three r-0'1i1t:m "'1t~>. In Sovth A!rio, 1h~ wroJk r;on111mer ~nvironrne;1t,,ni;i oggr~.siva C\,mpo-~tian hild a d,1rnp~nln9 ~f;r,(t on r""enut.
Group Eafl'DA lnue~i~d by 5,4% to R27 743 million, with lhe EBITDA morgir: remJining stable Ol ~1,0'hi e~d~dlng th~ r.iro~t r10rn (he tnwer sal~ In lvo!)•(o;m31'tl Come11,,on. We e·<pe<.1 :rnp•oved or9;inir.11row1h in EBITDA in tli~ <ec_i:'1d hair ol lllis yeor.
In the 1ix mr;nth penod we •nv~>ted R1:1 792 ~1rll•o11 in oJI' >leti.vor<. brhging I. 130 2G ond 1 iJOO 3G lites cln oir. n,;, f:J in line with our ~t1,W;"J)'to Tm prove th<·qu,,Utyc.f our YYViccolferin~ w mmt c~1tomci1ar,d remnino o k~y elen~entin ~.e(UlinJ (on!ino~d grow[h over the m~d1u1n term
Lro'ing the pe1iod uncier 1ev;ew, lh~ Grc1~p r;o:la;:>iAtd its interg•OLII) lom1 to MTN C.yda ~~a ~~t inve:mn~n\ •n 1.he forQigr, o;x:<ot1on in occo.-Wnce with th~ pMncipk1 ol IA5 2L 'l'ho Eflect of Chonge' In Fm~•gn EM.honge R,1te. Thi<. h~> rcsuiwJ in for~ign e.<~h-nge m:lve.'TienlS 01'8%/. m•lllon in '~P'Ct or Ut10 l<:e1n t;ii,ing OCC0i1nie6 IOr in "1Ulty f1on< I Jo~u;.ry 21113_ Thi\ ho< posinv~ly lmp,1'~CG ll~<idline N1nln01 per lharc (Hi:PS) wrrh HEP'.i incrc;i.,ing 22,0% 10 65~ cer.is (•,;rr tl1c µ<;r1ud
Prospects Fc~th"' rema;nd~1 oltlle yeor. wec•,Xp('tr rn del:ver im1:.a~.,.J y,:i• ,1g:ink9r(>W((\ hi bo1h tel'~n1.1ea11d iO!llrDA. A.1'.h~u•Jh op~rl1tlr9 ~or1•:lincm, in 51.<\llh Alrlv ~r~ ('•f.''-'\."l~d to rm•di" 1JdT•cul1, wi: will rn1tl<nu"'. w f('C~' ;in c:om1:i,;nrjvc, wlu~add~cl rroi.'OHl,,ns ill'•d on >i'np!Ol'if"l co11 d:it1e1ci~,;. The recovery"' oJr N1ge11~n OIA•Otit.:11 i1 ~'f'~'Jed \CJ cc1nth ·~~ ow,' tc,~ ,~;;i;,r 1d 11,rf.1upportcd by "pro11g C~pi\~I i~'"' 10<\urc prLVJr ~m• ""· W~ ~•pW; th~ GrrJ\111 tn iidd ,, \o1.1l cJ! JI.I million SlltJwt,t,~rsfm the 11111 /Jlj year_
MTN Group llmlt<d Reviewed lriterlm R«Llf« for 1110 s& manih, mded 3lJJune 1013
1045 1046
-;,/ 11
Tite GroJp repo1~ ""t debtofR3 96$ mlll•on :i1 na: CJsh bolmc~> decline.J by% ~2$ million dwien by the ino;f!!o~M in-;~s'.mcnt ~?>q•port our cope~ pr<,grJrrnn~ ar.d tl1ea1>oi:i.m:d in1ereot-be'11ing liobillli<~. 11>e n<:t deb! ~~clL1dP1 w.~01) :nii11011 (w:.;,) <Jf net caii1 in MT>: ir.J1'Ceil now nccoJnted fr,rcn Jr: eqUit)'bJsli
CHANGES IN OWNERSHIP D11ring 1he p~riud u1>d~i revie\•.', the r,;]l~wing ch,H1'J~~ in 1lmo•hc.\ding ocrn1·red ·''.lie •Jmup rnr1dur1ed the ~r;qui1it;o~ of th~ r~1naining SO% eqLlllJ inte•e~.t lr1 MTN (yp1us from ir~ lnol p.irmtr, Anw;;~o; Hvldlngs_ All cor1JiLkxb P'eceCern w (h~ ;Kqvlsitio1• wer': rulfil~(-d 011 26 ,\.iw.ll 2G10 dnd MTN Cypn~ i1 now a wi>oll'11JWn~rJ:;ll:i1iclOa~;cit lvlTf\ L'ub;ii;
• T11eGroq, dc-=rea1e<J IL11lrn,ehoklin9 in MT:-! h.-.-,:y (0011 5/'. lrnJ1167,U% to 66,B3%, il'l<l '•The •.iro1.1p i'Kf~ased itl s]i;,reholdrng in /<l11.cr~•an Onternct ~~rvic~ prCNldc'r '""Jilt~ 0Jta r'Jetwork~ M'~Titl'IS
Propr!erar,· l.iniiteO. from 60% rn 10(1%
Operational review SOUTH AFRICA • £BITD,\ "'a•9ir, dfociiw,O by 2,1 pt'<"~n;oge ~oinlc · Dat;11~·,~r•u2 inoe~;ed by l~.n,
Cip<:<~ inu~,.s~Li S.ti%
MTN South Africa folt rile efiem olweoker ron\urner dern~,;d oncl w11 ,low to r~11Jond to ~9\'i1e•.si·•~ Price C<)rn;:r~\1~011 ;, , both v:oiL~ df'<.i do\a offcringo. n,,, IC•tol ;ub;,;r;bc, rx"c .Jcdlr1C'd marginal I)• w ;!5.0 n 1ilfo1' fro:-n 2),4 rnillicn Jt 31 Oec~rnbe' 2012
After o 'Jifficul[ 5;;i1t to 2<)13, whi~h iaw dei:rfa1ed l\rh:;(;lib~r nfi (on,1ccrion\ tht; pre-p,1irl >~')m~nt milMgei:i to '"goin ;orr.o rn,1ri:el 1hore in tr.~ 1econd qu~rrcr rJu~ \o irnproved rlol'f\l<!nC)' :n<1noge1T.~n~ ~rrd JS c111iomer1 r~1ponde1:I Po<Jtively 10 lnwr,r r~r1rr, ;m(l lncr~a>(."J promrnlon.l' ac1t01y.
111": pGll·paid iub~.cribet bost periorrned well, ir1C1co1ing by s,s% during 1he six·nionLh ~eiiod 10 •I,<~ millrrn ·n1i<. "''"' drive•1 ll)' com_:;.otitlW do to dli::rln;i> 11nd 1he :>Kee;,:; ~fh~.'bric iind da:;si~ :Juckage;, GewitQ J di'r'cult opnrating r:r<Vimnme~t, M":"N South !\fricb rnil:nta"~ecJ lb rclotrv~voiue >hoic on,ong post-p<>id !1Jb1cnbcr;
ToWI r!'V~n\I~ d~lined oy l.'1% m R<O 146 milllon forn 0.20 4.10 million in The 1)re",1o;i1 yeitf ~ncli1~lrg Wm-! 61i1imrd. Alrlirn~ and 1ub1eriptic11 revenu~ d~linW hy 4.4% w R9443 mill,<Jn l••iidY clu~ lO low~r oul9oing voice reve.nue.
rMo ''NQ11110, ir>dt"iing "!il'< Bu>ino1s, incrDJ:-vJ bv l~,7% lO R~ 016 millit;01 frvm R3 $_Qi million;~ th' t»'ior y~or ~rid con\lltrJ!~d L"9~b 10 to:::,1l ,e·1en1x·. DotJ pnc;rg remained under pre;;;u<e as t11t' ;iverJgc ~ti"ectiw price perrnegab)'le rl~r.rea~d t>y 25,C% l'rorr< 31 ~111b1Jr :mo_
Doi a i\Ovenu~ g1owtb W3> >1.1op(lrt~ by an incre0>e. in th~ nu<nbtr or 1mJ!:>il~ d~1<i u>e.1:; w 13,5 milli11<> fro1r
11.'.l rnillicn, «rtr<ic>0d by o <:orr.pPllinq ·~lue DWJX;>ilinn and th~ .,ffl.-J~nt o:mibu1lr•n nr prociuct:_ Dorn reven·Je o!w b;n~ilt(-cl from The im~r,r;rion or MTN Gmi~('>:; Into lh~ 50\lth Alric:on operatior1. llar-d>cl~: or,(1 «c.:c1wries' r-;venut ~'~w by 16.()% \o RJ <l'.!3 ,·1fllil''"- tiv11~~ \he 1;~·tncY1th pL1'bJ, MTM ~vuth Africa sold l,<I Jllillic'n p1e-p.i10 phone1 ;md o·;tJ :lUQ pc-ot-;urj ~illle1Sot>. .
l:ll~ntleO M';f'l_1 dt.:li~":d by l U\'i- to ~lD'.<10 fro111 R121.51 ·n JJllf 201.!. Pre-pol~I ,;r,r11 nf Rn,i34 v:a; ;.l,'YJU k'""~ th,1n 1he 11m~ p~1kiJ l•,tyeo' (~9U3L l'n>;·pacd .~RPU de<:•~a;el! by :o;,5'.>. :(' K220,l);) .:ornnore<!wiLl1 P21,l,33 in th~ n;C"/11)\IS )'~dr.
~ c?i°~~,;;.~ ~J~
vodacom
Group Annual Report for the year ended 31 March 201 0
1048
Operating results co_~:~n~-'------------
7.1 O/o Group service revenue growth
(H b1illon)
~ _··_
·og 'G9 'JO
8.6°/o Contribution from data revenue
0.' Mot:ll•V<>ic<
r,: Mot:llo IMtcrronnec!
• Mobllomos"'IJlng
Revenue
Re~nue rose 5.6% to R58 535 milb"on wilh the continued robu1t rerformance in South AfrkJ off~etting rev~nue decline1 in Tan;:anio and the DRC. Reven\Je gmwtl1 was positively aftected by the G<itew"y ocqui,jllon (3.6 percenl<>ge points), offset mainly by~ negatjve impact from foreign ~~ch.inge rate trnn>latian (1.0 percent"ge point5). Ori a nom1alised' basis, Group revenue ond ieMce revenue increosed by 4.0% and 5.3%, ro:;,;p<:ctively.
Group mob;k voice rev~.nue inmase~ by 1.0% to R31 33B million wilh SouthAfrit~n mobile voice rev1mue inar."ing 5.1%. Group mobHe volr.e nwenue w•~ po1iliveJy impaaed by a 19.0% increase in outgoingtramc, partially offset by~ 17.3% r~duction in ;werage tarirfs auois ~'~ Gmilp.
Group mobile interconnect revenue decr~a1ed by 3.9% to R8 7~2 million lilrtjely due to ~lt 33.2% reduc~on in mobile lnterconnctt revenue in tm intern"tior.~I opcrotions. The d<xline in mobile interwnnecl rnve~ue re5\llted from the rnducticin in fixed-mobiletr;iffic in South i\frlc<l, the lowtr on-nN pricing of opera ton In all ma•k1ot1 resulting In dual .SIMS being utilised •>'Nell ,,, the lowNing ol mobile \errnin~lion r<Ms.
Group mobile mt5,aging revenue increo1ed 63% mainly due to ll1e 12.3% in~rerue in the numbe• of me11,iges ~nt "''"'-'the Group, pJr\i.illy offsd by a red1Jc~o11 in me.11a9ing c1"1rg~.1.
Grollp mobile data revenue incmt;ed by 31,9% to R4 ~98 n1illion due to the strong 9rowth In
dilta cu.1torn~rs and data tro!fic, partially olfaet by reduced dato pricing.
Other:>ervice rovenue 1<ros poiitiv~ly imr•r::ted by the lndu.1ion of a full year of Goteway revenue of R2 888 million compared to the priot yeilr amount of Rao8 million. Excluding Gateway, other stUVice revenue inoea;ed 11.8% mainly due lo the growth in cnterprl1e converg~d services from >outh Africa.
Equipment ll'Vcnue Lncreased 5.5% to R5 591 m11lion largely as a reiutt of mi a 1% licr~ilJe In
Group handiet 1ales to 6.4 million, p.11tially offset by a change in mi~ lo lower-end h•mdiets ilnd lower average 1elling prices.
Non-lervice revenue declir.ed 41,6% to R91 S million primarily"' i\ resullol the r~du<tion in itarter packial!!'; following the irnplcrnen!"tion or mCA in South Africa
Olher operating incmne ho1 heen incorporated into revenue to align a("countinSJ pmctice1 with
the Group'> paren1 VodafoM. Thi1 resulted ;n i1 reclassilirntion of Rl55 million for lhe prior year, Vodawrn odopted lfRIC 13: Customer Loyally p1ogr,11nmei ('IFRlC 13") from I April 2009, ;mtj now <Jccount1 <or rnstomer loyolty credits ai a separ~\e component of the 1ale> tnm:;action in which they are gr;mteO. lncl\1ded jn lmvice r~v~nua i> an ~.xpense of Rl 19 million which relotes rn prior yeor> in lerms or tile IFRIC 13 adoption.
·-----------YeJr ended 31 Mard1 % cliange
Rm 2ll10. 20(19 200S 09!10 OS/09
Mobile voice 31338 31 015 28 OS•: ,_, 10.6 Mobile inlerrnnnect 8 742 9 099 s 373 (~.9) 0.7 Mobile m~1i•ging 3 215 3 025 2 840 5.3 5.5 Mobile(lala 4498 3 411 2 162 31.9 57.8 Othcl" $crvite rCY~nue 4 233 2 01 l 835 110.5 140.S
Service revenue 51026 48 571 42 26•1 ,_, 14.9
i:quipment re~nue s 59·1 5 300 5 05"1 5.5 97
Non·1ervic~ 1eV<!n11e 918 I .171 1 019 (41.6) 54.2
T(ltal revenue .18535 55 442 '18 33,1 S.6 14.7
Nol<=
!. Nom.,,Jii<il lo "''"'' Guuwoy and at o <00>(<1111 'U"''''l
Vod3COn> Group Annual Report 2010 ~
1A~; 1oso research: C .~africa '
Benefits of reduced termination rates finally kick in with lower mobile prices
Mobile termination rate (MTR) reductions by the regulator have tinafly begun to impact positively on prepaid mobile prices in South Africa, The third termination rate reduction, which came into force in
March 2013, has for the first time enabled smaller mobile operators to drive down the prices of dominant operators MTN and Vodacom. Despite these gains the MTR is still far from cost, and the cheapest mobile prices in South Africa lag behind countries where the regulator has enabled com
petitive pricing pressure by enforcing a cost-based MTR.
ICIA Policy Brief South Africa Ro 1 .kll!I' 2013
Price pressure on SA ranks poorly on MTR not yet cost- Dominant operators Telkom Mobile stJU domlnant operators the RIA African Mo· based continue to thrive struggling to gain a Fof/ow1hg the third bile Prepaid Price In- While the new MTR set wlth reduced MTR foothold ln most prof-
dex itab1e contract seg· mobile termination rate at 40 cents, which Both MTNand ment of the mobile (MTR) reduction in , Although South Africa S came into force fn Vodacom, the two market.
March 2013 and the ranking has improved March 2013, has had dominant operators, are With only 1,5 million subsequent pressure with mobile price positive effects, it is still showing improved
reductions, ft still has active subscribers, and from smaller operators, above what is financfal performance declining postpaid MTN and Vodacom lhe 23rd highest pn·ces considered the cost of with subscriber subscriber numbers and were forced to reduce in Afn'ca according to an efficient operator and numbers, EBITDAs and ARPUs, can Telkom their tariffs to 2 cents the RIA Africa Prepaid is still considerably operating profits all up. Mobile's recently (ZAR) per second and Mobile Price index with, higher than in many Gel/ C and Telkom announced prices (29 to maintain these for example, MTN other African countries Mobile seem unable to cents on-net and 75 reductions. Ghana's prices which, as a result of sfgnfficantly dent the cents off-net) attract remaining a fraction of cost-based MTRs, have market share of MTN new subscribers? those of MTN South considerably lower retail and Vodacom.
Africa's. prices.
Introduction Research ICT Afrlca (R\A) monltors prepaid mobile prices across Africa quarterly. It does so by establishing the cost for a communication basket for all products and for all prepa\d operators in a country, and it has done so since the fourth quarter of 2010. The basket ls based on the OECD 40 cali/60 SMS basket (201 O). The prepaid mobile price results for the second quarter of 2013 In South Africa show an Improvement from 30th in 2012 to 23rd in South Africa's ranking in the RIA Attica Prepaid Mobile Price Index.
This improvement is due to termination rate reductions t!nalo/ enabling smaller operators to lower off-net prices (prlces for calls to other operators), Smaller operators have to offer similar off-net prices to the on-net prices of larger networKs Jn order to be sufficiently attractive for users to switch.
The mobile termination rates (MTR) dropped to 40 cents (ZAR) per minute In March 2013. Previous reductions in March 2011 and 2012 had little effect on retail prices, as tlley did not reduce the rate by a margin sufficient to allow smaller operators to significantly undercut the prices ol the dominant operators. The latest drop to 40 cents 1lnally allovved the smaller operators, wlth
their reduced off-net rates, lo chalienge the on-net prices of Vodacom and MTN. For each off-net minute, an operator has to pay the tennlnation rate to the terminating networK. The possible amount by which oft-net prices can be reduced is limited by
the MTR. The prescribed MTR ls still far tram being cost-based (as required by the law and international best practice). Further reductions would increase this competitive pressure further and lead to lower prices.
Financially, dornlr;ian.t mobile operators Vodacom and MTN are doing better than ever before, despite lower termination rates and low'er retan prices, as Vodacom indicated in Its latest interim results. FUl'ihei- reductions of termination rates and retail prices wm expand the market, improve consumer welfare and improve the profitabillty ol mobile operators - a win-win for alL
South Africa prepaid mobile prices Figure 1 displays the cost of the cheapest prepaid mobile product avai1able 1h Soutl-i Afri::a, and in all of Afr1ca, for the QECD1
40 calL/60 SMS basket betvJeen the fol!rth quarter o1A01~nd the >Ococd qc,rtec of 2013. 9
1 OECD (201 O), Revision of the Methodology tor Constructfng Telecommunication Price Baskets, OECO Working Party on Cornmunicalion Infra.structures and Services Policy.
3.2 3.2 2.9 2.4 3.2 1.7 1.7 1.7 1.7 -0 1.7 1.7 00 0 CV~ 0
£ g 0 0 £ 0 0 0 £ 0 0
" "' - N w - N s s g g g s " 0 ~ g g 0
0 N N .~ ~ " w
-o Cheapest In Africa ln USO Q SA basket price In USO 0 SARank
Figure 1: Ranking :md cost of cheapest prepaid mobile product available In South Africa and Afr/r;a for OEGD 40 calls and 60
SMS basket
Tue South Alrican basket price dropped durtng that period from USD16,6 to USD12.6, but was still nearly 7.5 times more expensive than the cheapest product in Africa and still tliree times more expensive than the cheapest product available from a dominant operator in Africa (MTN Ghana had a basket price of USD3.9: see Table 1 or Figure 2).
South Africa's ranking for the cheapest product In the country hovered betvveen 30th and 22nd most expensive during this period. The detailed ranking for all countries for the second quarter of 2013 is displayed in Table 1.
.o- Cheapest domlnant operator In Africa rn USD
'' Ch..,,pest domlnant operator In South Atrlca ln 1JSD
<> SA Dominant Openrtor Bank
2 e 2 8 2 g 8 0 2 e 8 " 3 ,, g g s ~ N g N N ~ 9 9 9 s
0 ;;; N N N " ,;; Figure 2: Ranking and cost of cheapest prepaid mobile product
available from dominant operators for OEGD 40 calls and 60 SMS basket
In South Africa, in the second quarter of 2013, only MVO Virgin Mobile seems not to be engaged in the price battle, wlth no adjustment to any of Its prices since March 2011. All other operators have either lowered prices or introduced cheaper products. MTN and Vodacom introduced a 2 cent per-second billing product. reducfng their OECD basket to ZAA122.26 (the first time that MTN prices have come down in tile period measured),
1 3 0
'" ' 0 0
"" ceuc """ MTN South Africa Virgin Moblle
Vodacol'O South Africa
Q
Figure 3: Cost of cheapest pnipaid mobile product for OECD·40calfs-60SMS basket by operators in ZAR~
Financial pe~ormance of mobile operators
N
Q
It fs signllicant that none of the dire warnings from South Africa's dominant operators, about the negattve lmpact of proposed reductions in MTRs, has materialised. MTN's and Vodacom's key performance indicators look better than those for previous years. In line with their pioneering role and market leadership ih the industry, Lhey have found new productive revenue streams through growing their data businesses and their value"added services, For both companies, revenues and subscriber numbers Increased in their most recent financial reports.
MTN
IVITN's prepaid and postpaid subscriber numbers have increased over the past eight quarters. Postpaid ARPLJs3 declined while prepaid ARPU's were constant over the last eight quarters - a bit unexpected given the increased demand for data. Inter
nationally, MTN's APRU levels are still on a very high level. Mn-J's implied per-minute price (ARPU/MOU4) decreased by 20 cents for the second year in a row. This estimate for MTN Is based, however, on blended ARPUs because prepaid and postpaid MOU are not reported separately by MTN.
MTN revenues Increased by 7% and EBITDA by 6.5% 1orthe FY2012 compared to 2011, while the EBITDA margin remained constant at a high 35.2%. Data and SMS revenues Increased 38% and 58% respectfvely. With evidence5 of significant free message data service substltlltion for SMS, one would have thought that revenues from SMS would be on the decline. A
1051
possible explanation for the SMS revenue increase could be increased use for machine-to-machine communication and bulk SMSlng. MTN reported i3.4 million data usersior the 20i2 llnancial year.
MTN also increased its CAPEXe in the 2012 financial year to 15.5% of revenues, up from 10.6% in the previous year. The CAPE< per subscnber increased from ZAR186 to ZAR253, indicating MTN's confidence in the South Africa telecommunications mar-Ket and its expected returns from the market The higher CAPEX is mostty attributable to network extension and upgrading to 4G.
Interestingly, MTN did not report on interconnection revenues and expenses in Its last annual report, something it had done for the past seven financial years. M1N's last reported interconnection net revenues were positive.
II Postpaid ~ Prepaid
Oi2011 032011 Qi2012 032012
Figure 3: MTC South Africa·subscriber numbers In m/11/on
Vodacom South Africa
Vodacom South A1rica's performance has been solid for the financial years ending in March 2010, 2011, 2012 and 2013. Revenues have consistently grown, to ZAR58.6 blllion In 20i 3, and its EBITDA margin sligh~ly improved by nearly one percentage point, \'lhlle operating profits. i_ncreased from-ZARi 6.7 billion to ZAR17.4 billio~ In_ the llnancial year ending In 2013,
Prepaid and postpaid subscrlbsr numbers increased, as did the traffic in--terrns of outgoing minutes. Active7 SIM cards numbers Increased from 19.7 to 30.3 million between 2010 and 2013.
Vodacom's voice traffic increased while SMS traffic decreased, a trend that was to be expected gfven the ava11ability of alternative forms o( texting via data services such as V\/hatsapp, Viber,
'Telkom Motile armounced a lower on-net price of 29 cents per minute and a 75 cent off-net p'1ce, prlclng considerably lower than any other offering. This Offer, flowever, Jell outside the period under review and thus is not Incorporated in the analysis above and wfll only be reflected in ths next quarterly repor:i: 11 does, however, suggest that late entrants now have sign~icant room to go head-to-head with the dominant opsrators on price. ~ 3 ARPU = average revenue per user per month •MOU~ minutes of use, which is the average numbar of rnlnutss called during a month. 6 RIA 2012 HocJSehold and Individual ICT Access and Usage survey 6 CAP EX"' capital expenditure 7 These are customers that have used seniices in past three months.
Facebook and Skype.Vodacom's decreased prepaid and postpaid MOU, lower voice revenues and higher data revenues also indicate a clear trond for South Africa's telecommunications sector.
-~-.. ---~-·-···- .. ----·--·-·~---·- 241,6 237.4
'l ~ @ D
~ 2 ~ ~ 3 ~
~ g
"' Figure 4: MTN South Africa ARPU (ZAR)
Table 2: MTNSauth Afric'a
' - '
1052
Vodacorn has "seen its profit increase while prices decreased in the more compet'tfve environment created by the reductions in MTRs over the last few years (as reflected lri the price benchmarks o1 the previous sections of this Policy Brief and also in Vodacom's audited financial statements. Voice revenue divided by outgoing minutes declined -from ZJl.R1.46 in 201 O b ZAR1.03 in 2013. Also, the implied price (ARPU divided by MOU) decreased overall despite an increase for postpaid subscribers. (ARPU takes all revenue together, including interconnection and data revenue, and divides it by subscribers.) Vodacom's postpaid subscriber increase is due to high data use,
Implied mfnute prices
Source:
lnlerconnect expenses for the financial year 20i 3 were not published by Vcdacorn, with only the interconnect revenues made public. Tue net Impact of M. TR reductions can thus r;sit_ ~s-sessed, as is the case lo~MTN. ~ Lr1 \JJ
Telkom Mobile ~ While Vodacom and MTN are Improving their performances from year to year, and Cell C seems to finally be making some
gains in tile lucrative mobile segment of the market, Telkom Mobile Is still siruggling to get Its business up and running.
Telkom Mobile has gained active prepaid subscribers but lost postpald subscribers. At the same time, postpaid ARPU
dropped by 20%. These are clear signs that Telkom Mobile is struggling Lo gain a foothold in 81\s most profitable mobile segment
Table 4: Telkom Mobile financial performance c»i:tracted from _ Telkom SA financial reports
-------, FY20;2 F:Y2013
Active [A._11 ______ ...... ---·----· -···--··--.. i _______ 1.53L· '.A_8! !~6bscrltr ~1:_t'.!?~~---·-------- .. ----~- ---~-E_.4 _ _,_~1_5"11
-r~~-----··---------------·i----- 1-~-~-f--·----2~:-1 lnrrastruc f;;-·-.. -- ----------·--+----:;~3-~·-;·~95~ '"'" I .. -· _____ ------- -j _ -'l- ___ ~
ARPU -.1:~.!.!~i--.~~.--~-... ~~-~~.·~. ~. :.:.~--~~.r. -.. -.. -. -.:.·~:~.tr-:~-~3.1.~9.~! R""""' -l~~r.,~::~~~~~-=~1-=20~~~=~,,~~. [,___" ______ --t--~---· fu) IM__r:.b~l_:i_ha_:i_~set_~-- ____ 1 3!__9t ----~~1
_Total-~--- __________ 1_~0~ _. -2~~~
Source; Telkom Annual report 2013 [ _ . ____ ._J Telkom Mob11e managed to expand its number of base stations by 29%, and sites by 45.3%. Of its sites, 651 were upgraded to carry LTE equipment. Currently Telkom Mobile offers amongst the lowest data prices for the highest throughput in the areas where It is available. 8
It remalns to be seen whether Telkom's bundling efforts, through offering fixed voice together with fixed and mobile data services, will bear fruH:. Fixed-line and fixed broadband access may become more attractive when combined with mobiie broadband at double or more the speed of ADSL (20 mbps compared to i-10 mbps) and combined with the convenience of mobility, At the same time, however, Telkom's 3.8 million f1xed-!ine subscnbers, most of whom are business subscribers, and Its 870,000 ADSL subscribers, may not provide Telkom Mobile with the leverage necessary to compete with the dominant mobrre players to whom many of Its fixed-line and corporate customers are already tied. Only time will tell whether Telkom Mobile vvill be able to attract a new customer base through Telkom bundled services and on which Telkom Mobile can piggy-back, but the his-tory of flXed services in South Africa does not bode well.
Cel\C
1053
simply their vi3biiity within the current competlUve envircnment) Is impossible. This is something that the regulator will have to assess as it enters into its termination rate feview this year.
Cell C's aggressive price reductions have certainly pressured the dominant operators into reducing their prices, and the significant investment fillip it has received in recent months suggests it remain serious about growing the mabne market and eroding some of the market share of the dominant players. Currently, Cell C says tt has ; 1.5 million customers, which constitutes about 17% of the market, and it has publicly targeted 25% of the market as the-share necessary for ii to become a viable competitor. With Vodacom's share of the market standing at 44% (with more than 30 million S\Ms sold), and MTN at 37% market share (25 million SIMs sold), Cell C will require a supportive regulatory environment and considerable inventiveness.
e Vodacom i~ MTN • CellC e Telkom Mobile
Figure 5: Estimated market share based cm annual reports and statement of Cel/C
Conclusions The MTR has flnalty been lowered sufficiently to result In pricing pressure on the dominant operators MTN and VodaCom. ~Vhi\e previously these two dornklant players were able to ignore newer entrants' efforts (by Cerr C ln particular) to undercut them, Cell C and Telkom Mobile have more recently been able to attract price-sensitive consumers and force down the prices of the dominant operators.
However, the current f!1Dbile termination rate and therefore prices remain high in comparison witll other African countries. Sovth Airica prepaid mobile price is almost four times more expe11Sive. than t_he cheapest in terms of dominant operator prices o1 the 46·Afrlcan countries monitored the RIA Africa Prepaid Mobile Price Index, and magnitudes of scale more expensive in terms of the cheapest product (where South Africa ranks only 23rd out of 46 countries ln the Index). Amongst the best performing African countries are those which have introduced costbased MTRs, South Africa's prepaid prices thus continue to be
Cell C have in t>oe past made a strong appeal for the retention of very expensive in comparison to many other African countries, asymmetrical termination rates in their, and Telkom Mobile's, and prices are unlikely to come down until the MTRs are re-favour. Without any transparency on Cell G's financial situation, duced to the cost of an efficient operator. Global and African
any assessment of the dangers of them exiting the market (or benchmarkl:ig suggests that th1S cost Is In the re}d:;/~~ ~.°:b
"RIA (2013) Broadba11d Quality of Services Polley Bnef 2 (lorthcornlng) see WW\'.' mseamhfGJi;frn7F! net and lor database \ / ..-o>/ btto·!!re5°arc:hictafrica oetJoHr:es!fair Mobjle oho
US cents, around 10 to 20 South African cents at the current exchange rate. This is less than half of the current rate (40 ZAR cents} in South Africa,
The decline of voice services and the growth of data are having a significant impact on the development of the mobile market. Voice and data subscribers are becoming increasingly difficult to distinguish between, as airtime is purchased and converted for data use and, at the same time, data services are used to make voice calls. It will be increasingly necessary to understand and assess the competitiveness of markets, the market shares and the success of players in this converged environment. With data becoming the dominant revenue stream, this is where much of the pricing pressure is occurring, as operators try to attract and retain broadband customers.
With the growing demand for data services, the South African regulator ICASA needs to enable operators to respond to the changing nature of the business and to innova1e and grow new services in response to declining voice revenue streams. This interplay between mobile and broadband pricing will be the focus of the next RIA Polley Brief, together with consideration of the important issue' of broadband quality of service which includes an assessment of whether broadband customers gett1ng what they pay for?
Recommendations Wlthln the context of the need for a wider overhaul of policy and development on a national a-strategy as proposed by the National Development Plan there are a number of specttlc actions that will improve the current negative policy outcomes in ihe area of mobile voice pricfng.
• For South Africa's termination rates and associated retail rates to move up the African \adder of affordability, or even to be amongst the top 10 In Africa, ICASA should reduce the MTR
to trie east of an efficient operator.
• ICASA also urgently needs to cornpetitfvely aliocate highdemand spectrum to enable operators to respond to the changing demand for mobile services, to build new revenue streams, and to grow new value-added services and applications which can further drive demand.
• !CASA needs to weigh the need for late entrants to continue to enjoy asymmetrical termination rates in a market that demonstrates many of the characteristics of a duopoly, and makes gaining a foothold by new entrants difficult. The dangers of small players exiting the market needs to be considered against the potentially negative consequences of asymmetry justifying high off net prices by dominant operators and inhibiting the expansion of the the small operators subscriber bases. The onty way to prevent this would be forlCASA to regulate a flat on and off net rate for all operators, which would only be feasible once the MTR is set at the cost of an efficient operator. Cost based termination rates may thus be the first most urgent step.
1054
References • RIA (2013) Understanding what is happening in JCT in South
Afn'ca. no. 7 (available at httpl/rssearchictafrica.nef)
For more information, contact: Dr. Alison Gillwald or Dr. Christoph Stork
Phone: +27214476332
Fax: +27214479529
Ema/I: agillwafd@researchfctafn'ca.net
cstork@research/CTafrica_nfil
Prepared with the assistance of Enrico Calandra [email protected]
httQ"/!WVVW rosearchigtqfrica pet
This research is made possible with the support of:
lDRC ij€ CRDI
See www.researchjctafrica net for other
1
1
Research ICT Af~ica publications:
RIA (2013) Broadband Pricing and Quality of Services in South Africa Polley Brief, no. 2
RIA (2013) Understanding What is Happening in JCT in South Africa. Evidence for ICT Policy Action, Policy Paper no. 7
RIA (2013) Broadband Quality of Services in South Afdca, Evidence for ICT Policy Action, Policy Paper no, 14
1055
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
Jn the matter between:
MOBILE TELEPHONE NETWORKS (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMUNICATIONS AUTl'IORITY OF SOUTH AFRICA
VODACOM (PTY) LTD
CELL C (PTY) LTD
TELKOM SA LTD
NEOTEL(PTY)LTD
CASE NO: 2014/04699
Applicant
First Respondent
Second Respondent
Third respondent
Fourth Respondent
Fifth Respondent
Sixth Respondent
25 FURTHER RESPONDENTS Seventh to thirty-first respondents
And in the matter between:
VODACOM (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
MOBILE TELEPHONE NETWORKS (PTY) LTD
CASE NO: 2014/06701
Applicant
First Respondent
Second Respondent
Third Respondent
CELL C (PTY) LTD
TELKOM SA SOC LTD
NEOTEL (PTY) LTD
1056 2
Fourth Respondent
Fifth Respondent
Sixth Respondent
33 FURTHER RESPONDENTS Seventh to thirty-ninth respondents
CONFIRMATORY AFFIDAVIT
l, the undersigned,
PIETER GROOTES
do hereby make oath and state that:
1. I am an adult male, working as the General Manager of the Markets and
Competition Division of the Independent Communications Authority of
South Africa, with its principal place of business at Pinmil! Farm, 164
Katherine Street, Sandton, South Africa.
2. The facts and allegations herein are, save._Where the contrary is indicated
by context, within my personal knowledge and are, to the best of my
belief, both true and correct.
1057 3
3. I have read the answering affidavit of NOMVUYISO BATYI and confirm
the contents thereof insofar as they relate to me and the work of the
Markets and Competition Division.
I hereby certify that the deponent knows and understands the contents of this
affidavit and that it is to the best of her knowledge both true and correct. This
affidavit, was signed and sworn to before me at SANDTON on this the J211.day
of MARCH 2014, and that the Regulations contained in Government Notice
R.1258 of21July1972, as amended, have been complied with.
COMMISSIONER OF OATHS
Nadia Giacovazzi 15 Alice Lane
S<indton Commissioner of Oaths Ex Officio
Practising Attorney Republic of South Africa
1058
JN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
CASE NO: 2014/04699 In the matter between:
MOBILE TELEPHONE NETWORKS (PTY) LTD Applicant
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRJCA First Respondent
THE INDEPENDENT COMMUNICATIONS AU"JiH9RITY OF SOUTH AFRlCA Second Respondent
\(.ODACOM (PTY) LTD Third respondent
CELL C (PTY) LTD Fourth Respondent
TELKOM SAL TD Fifth Respondent
NEOTEL(PTY)LTD Sixth Respondent
25 FURTHER RESPONDENTS Seventh to thirty-first respondents
CASE NO: 2014/06701 And in the matter between:
VODACOM (PTY) LTD Applicant
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA First Respondent
THE INDEPENDENT COMMUNICATIONS AUTHORITY OF ·SOUTH AFRICA Second Respondent
MOBILE TELEPHONE NETWORKS (PTY) LTD Third Respondent
CELL C (PTY) LTD
TELKOM SA SOC LTD
NEOTEL (PTY) LTD
1059
2
Fourth Respondent
Fifth Respondent
Sixth Respondent
33 FURTHER RESPONDENTS Seventh to thirty-ninth respondents
CONFIRMATORY AFFIDAVIT
J, the undersigned,
JAMES WILLIAM HODGE
do hereby make oath and state that:
1. I am an adult male, working as the managing partner of the Competition
and Regulatory Economics Practice of Genesis Ana!ytics, with its
principal place of business at 50 6th Road, Hyde Park, South Africa,
2. The facts and allegations herein are, save where the contrary' is indicated
by context, within my personal knowledge and are, to the best of my
belief, both true and correct.
3. Genesis Ana!ytics is a consulting firm that advises governments and
companies in emerging markets on competition, strategy, regulation and
1060
3
development. 1 am an experienced professional economist, specialising
in competition law. My Curriculum Vitae is attached marked "JH1".
4. I have read the answering affidavit of NOMVUYISO BATYJ and confirm
the contents thereof insofar as they relate to me. and the report prepared
by me and Anthony Felet on mobile termination costs, annexed to the
answering affidavit.
I hereby certify that the deponent knows and understands the contents of this
affidavit and that it is to the best of her knowledge both true and correct. This
affidavit was signed and sworn to before me at SANDTON on this the I 2-day
of MARCH 2014, and that the Regulations contained in Government Notice
R.1258 of 21 July 1972, as amended, have been complied with.
Nadia Gi:lcovazzi 15Alice Lane
· Sandton Commissioner of Oaths Ex Officio
Practising Attorney Republic of South Africa
1061
James Hodge
Bachelor of Business Science (Honours) specialising in Economics (1990), Master of Commerce in Economics (1997) (Distinction)
Genesis Partner, Competltion and Regula\Orf Economics Practice
HlGHllGHTS
James is the managing partner of the Compet~ion and Regulatory Economics Practice at Genesis Analytics. He has a Masters degree in economics from the University of Cape Town and held a senior lecturer position in the
School of Economics at the University of Cape Town before joining Genesis in 2005. During his tenure at the
University, he conducted extensive research in the competition and regulation fi!11ds and was convenor of
postgraduate economic studies.
Since Joining Genesis, James has earned a reputation as one of the most respected economists in the
competition law field in South Africa. Under his guidance, Genesis has become the most experienced group cl
competition economists in South Africa, being Involved in more cases than any other economics firm. James has
provided expert testimony before the Competition Tribunal in many of the landmark cases for South African
precedent, including both mergers and prohibited practices complaints. He has assisted numerous companies
when engaging with the Competition Commission, and through providing advice on the design of compliant
business practices which address business objectives. James' clients include blue-chip South African o;nd
international firms as well as the Competition Commission itself, and his experience covers most sectors
Including comrTiu~ications, mining, consumer goods, healthcare, agriculture, financial services and industrial
goods. James' eXperlence. also extends to competition policy itself, recently advls!ng the Department of Trade
and Industry on publlc inte(est considerations in oompetitlon matters. t
Many of Genesis' clients in competition matters also face regulatory pressures In their respective sectors. As
such, James has led an array of regulatory work for clients in the telecommunications, broadcasting, health and
energy fields. Jn telecommunlcations, James Is recognised as a regulatory expert having advised the regulator
(!CASA) on a number of matters as well as regulated firms. In health, James' experience includes various
matters relating to price regulation in pharmacies, OTC medicines and the private hospital sector. Most recently,
James spearheaded a comprahensfve assessment of the recent price increase proposal of the nation al electricity
provider, In addition to regulatory work, James has been engaged by clients in pursuit and defence of large
damages claims arising from contractual disputes.
In the area of international trade, James formerly lectured in intemati0nal trade to postgraduates at the University
of Cape Town and has advised South Africa, SADC and the Africa Group in terms of both WTO negotiations and
regional trade agreements. He has also been called on by Unctad and the World Bank as an expert in services
trade.
James is widely published In refereed journals and is the author of several chapters in books, many conference
papers (international and local) and a variety of articles In other publications. He has been the guest editor and
an external reviewer for the Africa edition of the Telecommunicatiofls Polley journal, and is an external examiner
at the University oftl1e Witwatersrand.
AREAS OF EXPERtlSE
competition compliance advice to firms, expert testimony and reports for.competition complaints and merger
cases; regulatory advice to the private sector; advice to sector regulators regarding compliance, assessment of
damages, high tech sectoral development. trade in services
1062
WORK EXPERIENCE
GENESIS ANALYTlCS- Competlt!on and Regulatory Economics (CRE) Practice (March 2005- present)
Positions held:
Managing Partner (March 2005- present)
Tue Competition and Regulatory Economics Practice is a team of professional economists and regulatory accountants that provide the following services to private companies, sector regulators, governments and International organiz:atlons in Africa:
Competition - expert economic reports and testimony for competition authority investigations and hearings, internal compliance programs and market enquiries. Policy. legislation and institutional advice and development assistance.
Regulation - expert economic and accounting support for detailed regulation, legislative and policy development and reviews [including regulatoiy impact assessments).
Damages assessment- expert economic and accounting reports determining the quantum of damages In litigation.
Role:
As an economist in the Competition and Regulatoiy Economics Practice, I have worked extensively on competition al)d regulatory matters in South Africa and have acci;mulated a wealth of experience in providing economic analysis and expert testimony/advice/opinions in this contexl My experience includes a wide range of projects which were conducted on behalf of various corporate companies, regulatory agencies and government bodies. Some highlights of work completed since the establishment of the practice and whicli as managing partnef I have been actively involved in to a greater or lesser degree are listed below.
Competition: I have experience In dealing with a range of aspects of the Competition Act including those relating to mergers and anti-competitive behaviour, lncl. excessive pricing, exclusionary practrces, prohibited price discrimination, horizo_ntal agreements and resale price maintenance. Some of the key Industries and projects that J have provided expert reports on include:
Mergers and merger opposition
Communications: MTN-Verizon, Telkom-Business Connection (opposition)
BroarJcasting!Media: Media24-Natal Witness, Naspers--M-Net. Media24-0nelogix, Primedia-Kaya (opposition)
Agribusiness: Afgri-MGK, Pioneer-Pannar, Senwes-Afgri, Suidwes-Agrinet, Yorkcor-GFP, SenwesBunge JV, Rainbow-Bush Valley, BKB-ECAC. MTO-Boskor(opposition)
Financial services: Metropolitan-Momentum, AON-Glenrand
Manufacturing: ATC-Aberdare, AFrox-Reco, Wheelabrator-Thor, DCD Dorbyl--Globe Engineering, Midas-Imperial, Gemalto-Namitech, Actom-Savcio, Sunset Bay-Jobling
Oil and chemicals: CAH-Botash, Tosas-Roadspan, Freeworld-Ka~sai(oppcsition)
Mining: Harmony-Goldtlelds (opposition), Bedrock-Mondi Plantations
Transport: lanseria airport- PIC
Retail and leisure: Massmart-Moresport, Walmart-Massma.rt (opposition), Phumelela-Gold Circle {opposition)
Healthcare: Medlcross-Primecure (opposition), Mediclinic-Afrox (oppositi~n}
Ar.~-competitive behaviour
Price discrimination: Sasol v Nationwide Poles, Senwes v Commission. Telkom v SAVA
Excessive pricing: Sasol Wa:,(, v Willowton, Telkom v SAVA, Telkom v Commission
Exclusionary behaviour. Telkom v SAVA, Telkom v Commission, JTI v BATSA, Kulula v 1time, Coca Cola Fortune
Resale price maintenanca: General Motors SA
Horizontal agre(Jmenls: Omnia. Nestle, Netslarffracker, Foodcorp
Interim relief. Vodacom v Gogga
1063
Compliance advice: I have provided expert economic advice to a large number of blue-chip South African and lndlan companies in a range of industries across all elements of the Competition Act
Market Enquiries
Banking enquiry; expert economic advice to Standard Barik of South Africa (SBSA) for the duration of the Competition Commission's Banking Enquiry Healthcare enquiry: Advised the Commission as to the main areas of a potential healthcare enquiry
Regulation; I have been deeply involved in providing expert economic advice and analysis in a number of sector and regulatory settings, where the economic input provided has helped to shape regulatory decisions and policy. Some of the Key industries and projects that! have worked on include:
Telecommunications: SettJement Agreement between Telkom and the Competi~on Commission; Interconnection dispute (Telkom a.ta v MTNNodacom), Regulator findings for the call termination and wholesale leased line markets (Independent Communications Authority of South Africa - ICASA); Telecommunicatlon market trends and inteiligencs study (!CASA); Market definition and signfflcant market power determinations for South African telecommunications markets (ICASA); Fifteen year review of Communications Policy (Office of the Presidency), Impact of regulatory reform on Uganda Telecommunications Limited {Privatisation Office. Government of Uganda): Strategy review and formulation for Universal Service and Access Agency of South Africa (USAA SA); Twelve steps to reforming telecommunications In South Africa (Business Trust); Member of the Telecommunications Priciri9 Committee (Depl of Communications), Expert Member of ICASA Panel on Interconnection
Energy. Assessment of the Eskom MYPD2 tariff application: A~sassment of!ha proposed re-structurtng of the Trans net fUel pipeline tariffs: Assessment of the proposed regulatory rules in respect of lPPs; Assessment of Carbon tax proposals {Busa)
Broadr:;asting: Economic modelling of digital migration strategies for analogue television in South Africa (Depl of Communications working group), Future of Television {NAB);
Healthcare: Economic report in respect of high court litigation on pharmacy pricing regulations {PSF). Report on the SA private healthcare sector and potential scope of a healthcare industry review (Competition Commission}:
Gaming: Economic repart in respect of transfer of gaming licence {Phurnelela); Reports on the competitive impact of relocating casino licences in both the Western Cape and Pretoria (Sun international); Report on the impact of a new casino licence In Gaborone (Sun lnternauonal)
Labour: Economic report in respect of labour regula~ons extending collective bargaining agreements in the clothing industy specifically (NBC~Valuline); Economic report in respect of labour regulations extending collective bargaining agreemeMs in general (Ministry of Labour v Free Market Foundation).
Trad a. Review of proposed duties on set top boxes (MultiChoice); Report on proposed policy in respect of scrap metal regulations (Dept of Economic Development); Report on the impact of proposed sugar tarrff increases (SA Sugar Associatlon); Report on application of safeguards to poultry imports from Europe {SA Poultry Association).
Other. Framework for the design of sector .regulatory instltuUons (Office of the PresidencYJ, Impact of airline liberafizallon in SADC (Ccmmatk Trust); Review of the efficacy of the Competition Act in respect of regulated sectors (World Bank/Dll}; Investigation of Import parity pricing and policy options in pulp and paper industries (Dept. of Trade and Industry).
Damages litlgation; I have proVided expert reports in respect of commercial damages litigation
Trustee v SABC in .respect of contract repudiaUon for premiL;m rated SMS services (award R80m)
Expert Testimony; I have prov1ded expert testimony and faced cross-examination in a number of the competition, regulatory and damages matters in which I provided expert reports
Competilion TribrJnal: Phumelela v Commission; Natal Witness - Media24; Actom - Savcio; Telkom \I
the Competition Commission; Pioneer Hi-Bred- Pannar; Walmart-Massmart~ DCD Dorb)ll-Globe Engineering; Competition Commission v Ne~tar. Tf<!cker and Matrix; MTN-Verizon; Senwes v
1064
Competition Commission; Naspers-MNet/SuperSport; Telkom-BLJSiness Connexion: Primedia-Kaya FM: Massmart-Moresport: Primecure-Medicross: Harmony-Goldfields
Marker Enquiry Panels: Bariking Enquiry
Sector Regulators: Interconnection dispute 8.ta-MTNNodacom (lcasa); Eskorn MYPD2 application {Nersa}; Trans net fuel pipeline tariff applicatioFl (Nersa); Community Service Telephones (lcas<i); set top box tariff hearing (ITAC}, Sugar tariffs (!TAC)
Arbitration proceedings: SABC v Tru:;tco; Sasol Wax v Morelite
Expert Panel Member; I have sat as an independent expert economist as part of a panel in a number of regulatory panels
Independent Communications Authority of South Afric::r.. Call termination rate hearings, Wholesale leased line and other markets
Government Telecommunications Pricing Committee (Dept. of Communications)
UN!VERSITI OF WITWATERSRAND (June 2005-2008)
Positions held;
Seasonal lecturer at the School of Economic and Business Sciences
Role:
James has taught courses to postgraduate students in the areas of applied microeconomics and industrial organization. He also prci'vided guest lectures to the LINK Centre courses in telecommunication; regulaUon.
UNIVERSITY OF CAPE TOWN (March 1995- February 2005)
Positions held:
Senior lecturer. School of Economics (January 2004- February 2005), Lecturer. School of Economics. (January 2000- December 2003), Senior Researcher. Development Policy Research Unit. (January 1996 - December 1999), Assistant lecturer. School of Economics. (March 1995 - December 1995)
Roles:
Academic Research: My university research career focused principally in the following three broad areas
Competltion and Regulalory Economics: privatisation and regulatory reform of public utllities, governance issues Jn regulation, political economy of regulatory reform choice and implementation, social policy under liberalised network industries, and consumer choice modeling
Trade in Services: measurement of service trade levels, the role of service Industries In growth and developmen~ services and the labour marke~ South Africa/SADC and the World Trade Org.anlsation (WTO) negotiations, political economy of service trade negotiations
High tech sectoral development: industrlal strategy for the deve!opment of high tech industries (national and regional levels}; international trade in high tech products: information and oommunication technologies policy; technical support for SME development; lab?ur markets and technical change
Economic Polley Support: During my academic career I had a strong interest.and involvement in policy support in South Africa and the Southern African region. l was closely involved Jn the followlng policy areas
Development of a South African negotiation strategy on Services with the Department of Trade and Industry;
Service trade negotiation support in Geneva for the Africa Group and SADC
Facilitation of ser.rice nego:iatlon positions and strategy for SACU for the proposed FTA with the USA
Regulatory oversight of public utilities with the sector regulators, the Competition Commisslon, the Department of Trade arid Industry and the National Treasury;
1065
Development of policy in the areas of information and communicaLions technology with the Departments of Trade and Industry, Communications, and Arts, Culture. Science and Technology
. Regional economic policy support in the Western Cape and Gauteng.regions
I also provided more Formal input into global bodies such as the WTO and UNCTAD, namely
WTO Annual Public Symposium, 16-18 June, 2003, Geneva
United Nations Conference on Trade a11d Development (UNCTAD) Commission on Trade in Goods and Ser11ices and Commodities, Seventh Session, 3-6 February, 2003, Geneva
WTO Council on Services Meeting, 28 October - 1 November, 2002, Geneva
Teaching: He lectured primarily graduate level (Honours to PhD level} courses In International trade, industrial organization and microeconomics. For the final years of my stay at UCT I was the postgraduate convener for economics, I also taught on short training courses and in once-off training workshops. Some of the courses on whicll l taught in the past Include
Regulatory reform in infrastructure industries - UCT Graduate School of Business
WTO Trade Policy Course - Nairobi, Kenya
Trade Policy Tools and Analysis - UCT School of Economics short course fer SATRN
Emerging trade issues - Joint World bank/TIPS course
I O:iso .taught on short once-off training workshops on services trade for the governments of Mauritius, South Africa and Botswana as well as for SADC, and workshops on the telecoms sector for the Department of Trade and Industry, the Compe~tion Commlssion, Trade and Investment South Africa and SATRN r
ANDERSON CONSULTING {September1992·July 1994))
Positions held:
Business Analyst
Role:
Worked primarily with Andersen's parastatal clients as a business analyst
COUNtRIESOFWORKEXPERIENCE
India, South Africa
EOUCATIO!ll
Bachelor of Business Science (Economics)- University of Cape Town (1990)
Master of Commerce in Economics {Distinc~on) - Universrty of Cape Town (1997)
1066
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
CASE NO: 2014104699 Jn the matter between:
MOBILE TELEPHONE NETWORKS (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMJNICATIONS AUTHORITY OF SOUTH AFRICA
' VODACOM (PTY) LTD
CELL C (PTY) LTD
TELKOM SA LTD
NEOTEL (PTY) LTD
Applicant
First Respondent
Second Respondent
Third respondent
Fourth Respondent
Fifth Respondent
Sixth Respondent
25 FURTHER RESPONDENTS Seventh to thirty-first respondents
And in the matter between:
VODACOM (PTY) LTD
and
THE CHAIRPERSON OF THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
THE INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA
MOBILE TELEPHONE NETWORKS (PTY) LTD
CASE NO: 2014106701
Applicant
First Respondent
Second Respondent
Third RespOndent
1067 1068 2 3
CELL C (PTY) LTD
TELKOM SA SOC LTD
Fourth Respondent
Fifth Respondent
NEOTEL (PTY) LTD Sixth Respondent
33 FURTHER RESPONDENTS Seventh to thirty.ninth respondents
CONFIRMATORY AFFIDAVIT
I, the undersigned,
ANTONIO FELET
do hereby make oath and state that:
1.
2.
I am an adult male, working as a senior regulatory accountant in the
Competition and Regulatory Economics Practice of Genesis Analytics,
with its principal place of business at 50 6th Road, Hyde Park, South
Africa.
The facts and allegations herein are, sav.e where the contrary is indicated
by context, within my personal knowledge and are, to the best of my
belief, both true and correct.
3. Genesis Analytics is a consulting firm that advises governments and
companies in emerging markets on competition, strategy, regulation and
development. l am an experienced regulatory and antitrust financial
specialist. My Curriculum Vitae ls attached marked "AF1 ".
4. I have read the answering affidavit of NOMVUYlSO BATYJ and confinn
the contents thereof insofar as they relate to me and the report prepared
by me and James Hodge on mobile termination costs, annexed to the
answering affidavit marked.
ANTONIO FELET
I hereby certify that the deponent knows and understands the contents of this
affidavit and that it ls to the best of her Knowledge both true and correct. This
affidavit was signed and sworn to before me at SANDTON on this the ..ll._day
of MARCH 2014, and that the Regulations contained in Government Notice
R.1258 of21July1972, as amended, have been complied with.
Nadfa· Giacovazzl 15Alice Lane
·. SHndton Cop1miS.>ion7r_ of Oalhs Ex Officio
PrncHsingALtorney Republic of South Afrir.:a
1069
Antonio Felet
M.COM, B.COM, CPA
Focus areas: Regulatory accounting frameworks, Tariff analysis, Competition abuse analysis
Current Position: Senior regulatory accountant, Competitlon and Regulatory Economics Practice
HIGHLIGHTS
Antonio is a senior regulatory and antitrust financial specialist. He has worked on behalf of large South African
firms, and the Competttion Commission, in leading competition abuse cases involving allegations of excessive
pricing, predatory pricing and margin squeeze. He has led in the design and implementation of regulatory and
financial accounting policies for NERSA and the Ports Regulator of South Africa, and has advised government
departments such as the DoE in the determination of tariffs for regulated services, His clients operate in a
diverse range of sectors Including banking, media, pharmaceutlcal, retail, telecommunications and tralisportation.
He is a leading expert in the use of financial analysis in antitrust cases - including merger analysis, abuse of
dominance and horizontal agreements.
Prior to jof~ing, Genesis in 2009, Antonio worked for the UK Competition Commission and the Postal Services
Commission, where he developed his expertise in regulatory tariff setting and profitabillty analysls in competition
assessment. Antonio has a Master's degree in Commerce and Professional Accounting (M Com.) and a
Bachelor's degree in Economics (B Econ). Antonio is also Certified Practicing Accountant and has been a
member of CPA Australia since 1998.
AREAS OF EXPERTISE
Competition abuse analysis, Tariff analysis, Regulatoty pollcy, Regulatory accounting frameworks, Development
economics
WORK EXPERIENCE
Current: Genesis Anafytlcs. Senior Manager, Competition and Regulatory Economics Practice
Main Activities:
Leading flnancial analysis team in competition abuse cases
Development of regulatoty accounting frameworks for economic regulators
Assessing regulated price levels across all regulated sectors
Hl9hffghts:
• Antonio led the team that advised the Ports Regulator on the appropriateness of the National Ports
Authority's tariff increase application for the financial year 2013114. The team applied regulatory accounting
techniques to provide an expert report and financial model which assessed all .elements that are relevant in the
determination of appropriate returns and tariff levels. Based on the findings and the calculations of the Genesis
tariff model, the Ports Regulator of South Africa has rejected the Transnet National Ports Authority's application
and instead applied significant reductions Jn cargo dues and nil increases for other port tariffs.
• Assessed Eskom's MYPD 2 and MYPD 3 applications: Antonio led the team that assessed Eskom's latest
MYPD 2 and MYPD 3 applicatlons which requested significant increases in electricity tariffs. Anto'nlo's team
1070 assessed the cost assumptio11s i11 relation lo Eskom's application and provided NERSA with analysis as to a
more appropriate pricing paths.
• A report on the financial aspects of NERSA's MYPD mettiodology document: Analysis done for the
University of Cape Town (UCT). Antonio performed a11 assessment of the MYPD Methodology used by NERSA's
electricity regulation division and presented recommendations for amendments/additions to the MYPD
methodology.
• Expert evidence and assistance on new petroleum and p!pelines regulations and tariffs before NERSA
in·2010: Antonio was part of a learn that assisted a large local refiner, Sasol Oil, at the energy regulators
hearings into proposed new petroleum pipeline regulations and tariffs in 201 O. Genesis's expert input on both the
tariff methodology to be employed and alternative tariff plans to recover the cost of a large local pipeline
Investment proved pivotal In Informing the regulator's final decision to keep the tariff methodology unchanged.
• Antonio was part of the team that reviewed the Integrated Resource Plan (IRP) for South Africa - 2010 to
2030 on behalf of BUSA. Antonio produced a financial model that calculated forecast tariff yields and C02
emissions for each year up to 2030.
• Financial analysis in support of antitrust investlgaUons into horizontal agreements, excessive pricing,
predatory pricing, margin squeeze and merger control. Antonio represented Sasol in its case against the
Competition Commission Involving allegations of excessive pricing of chemicals products. Antonio represented
the Competition Commlssion ln its excessive pricing and margin squeeze case against Telkom involving
wholesale net>york services. Antonio represented Med\a24 in its case against the Competition Commission
involving allegations of predatory pricing of newspaper titles.
2008 to 2009: Postal Services Commission • Deputy Director Regulatory Finance, London
Activities & Results:
• Managing three policy projects relating to transfer pricing, cost transparency and margin squeeze allegations
against Royal Mail
• Assessing the transfer pricing arrangements between Royal Mail and the Post Office
• Developing, implementing and ensuring compliance with new regulatory financial disclosure requirements for
Royal Mail
• Analysing and evaluating predation and margin squeeze allegations against Royal Mail
• Engaging with and providing technical advice to economic policy staff, facilitating a shared understanding of
financial regulatory requirements and policies
2001 - 2007: UK competition Commission. Financial Analyst/ Advisor, London
Activities & Results:
• Developed and implemented a 'Theory of Harm' Model, now .used by authorities nationwide to assess
potential competitive effect Of mergers involving transport companies
• Conducted detailed financial analyses on companies involved in merger enquiries
• Conducted profitability analyses for markets under Investigation, including banks, supermarkets, telecoms
and the media
• Produced financial models to establish a 5·year price cap for BAA (Heathrow, Gatwick and Stansted) &
Manchester airports
• Determined the appropriate Cost of Capital for OCF calculations in financial models
1071 • Investigated management accounts of companies under lrwestigation, ·requested additional financial
l11forrnation and produced briefs for hearings
• Drafted financial and background material for published CC inquiry reports
• Consulted with economic and legal actvisors to gather, interpret and disseminate information pertaining to
each investigation
• Produced ad-hoe analyses and reports for Competitfon Commission members
EDUCATION
2003:
1996-1996:
1996-1998;
1992-1994:
AMCT Program (First time pass}-Association of Corporate Treasurers
CPA Program (Distinctions In all subjects) - Australian Society of Certified Practlctng'
Accountants
Masters of Commerce In Professional Accounting MCOM - Macquarie University
Bachelor of Economics (Accounting & Finance) BECON- Macquarie University
SELECT PUBLICATIONS
2012: "Determining the regulatory asset base": A paper written for the 2012 South African Economic
Regulators C~1nference. 2012: "Do hospital mergers lead To healthy profits?": A paper written for the Sixth Annual Conference on
Competition law, Economics and Policy in South Africa.
2011: "Key insights into assessing below cost pricing in South Africa': A paper wri\ten for the Fifth Annual
Conference on Competition law, Economics and Policy in South Africa.
201 O: "The use of profitability analysis by competition authorlties": A paper written for the Fourth Annual
Conference on Competition Law. Economics and Policy in South Africa.
