The Interconnect Rate Debate

There has been a huge amount of debate in the media recently about the exhorbitant interconnect rates charged by cell providers and the impact on mobile call costs in South Africa. What exactly does this mean and what are the implications for VoIP in SA should interconnect rates come down?

What are interconnect rates?

Interconnect or termination rates are the charges that one provider charges another for carrying traffic on their network. For example when a MTN user calls a Vodacom user, there is ‘cost’ to Vodacom for carrying the second part of the call to their user. The charge is based on an agreed rate between cell providers on what the associated ‘cost’ is for carrying that traffic. The contentious issue is whether the cell providers claimed cost is accurate or not.

The issue

GSM cellular licences were granted to Vodacom and MTN on 30 September 1993. At this time there were about 2m GSM users in the world, today there are nearly 4bn users worldwide and nearly 40m users in SA. So an interconnect cost worked out in 1993 when cell user estimates were very conservative, compared to the reality today, paints a very biased picture in terms of the interconnect ‘cost’ which has barely changed in this time. The current interconnect rate is R1.25 p/min with little incentive for cell providers to reduce this ‘cost’ and there seems to be no pressure being exerted by ICASA to force any change.

Where to next?

Significant pressure has started to be put on ICASA and government to reduce these interconnect charges in order to increase competition and reduce telecommunication costs. Leading the challenge seems to be local ITSP’s or VoIP Providers who stand to benefit most from reduced interconnect rates as it makes them a real alternative to the incumbant operators. ECN Telecom has been one of the VoIP Providers to lead the charge and has been very outspoken in the media claiming that the true interconnect cost should be somewhere around 25c p/min.

Implications for VoIP termination in SA

Currently the cheapest way for a business to make mobile calls is by using a LCR (least cost router) onsite which terminates calls directly to the GSM operators. There is an industry focussed on offering these traditional LCR services such as Vox Orion, Huge Telecom, Nashua Mobile etc. Should the interconnnect rates eventually drop to the levels suggested above, it would mean that LCR would no longer happen on a customer site but traffic would rather be routed to a VoIP provider who could terminate the call more cost effectively. Any IP enabled PBX could be set up to route calls to a VoIP provider (or multiple providers), alternatively an IP gateway could be used if a PBX is not IP enabled.

Conclusion

The battle may have only just begun but it is inevitable that with mounting pressure interconnect rates will have to come down at some point in South Africa. At this stage the timing or extend of this change is anyone’s guess (including ICASA’s it seems!). It is however certain that when these rates do come down it will enable real competition in the telecoms landscape and make VoIP termination a very appealing alternative for businesses in SA!