Communications regulator Icasa has settled on the model it intends using to calculate call termination rates as the high court-imposed deadline nears for it to draw up new regulations that govern the rates, which operators charge each other to carry calls between their networks.
In a briefing note issued on Monday, Icasa said that it will use “long-run incremental cost plus” (LRIC+) as the cost standard for “bottom-up and top-down modelling” to determine the cost of mobile and fixed wholesale voice call termination.
In March, the high court in Johannesburg found that Icasa’s 2014 call termination regulations were “invalid and unlawful” but, in a surprising move, said the cuts to termination rates would take effect as planned on 1 April for a period of six months. That deadline expires at the end of August.
The rate cuts included “asymmetry” that benefits smaller players — controversially, including Cell C — which receive more money for each call terminated on their networks by MTN and Vodacom than they pay for calls they send in the other direction to the two big mobile players.
Icasa said on Monday that it had decided to adopt LRIC+ as it would “allow operators to recover a portion of joint and common costs incurred in the provision of wholesale voice call termination service through termination rates … and to correct the imbalances created in 2010 wherein the 2010 call termination regulations applied different cost standards to different markets”.
The fundamental difference between LRIC and LRIC+ — pronounced “lyric” and “lyric plus” — is that the latter includes joint and common costs, while these costs are excluded for pure LRIC.
“Basically, LRIC+ was an attempt to accommodate the inaccuracies that were arising from the forward looking costs of LRIC,” said Research ICT Africa executive director Alison Gillwald. “It’s a regulatory adaptation out of the European Union and other jurisdictions that have been using LRIC to try and compensate for some of the cost-based inaccuracies that were happening. Theoretically, LRIC was working, but practically it wasn’t.”
LRIC+ is generally considered an improved cost standard calculation and is accepted as best practice in many countries. “This can be considered a victory for everyone in a sense,” said Gillwald. “It brings South Africa’s interconnection rates in line with what is regarded as good practice around the world and it is good for the industry.”
She said that although Icasa has chosen the best option, it will face challenges getting the correct data from the operators to regulate effectively. “It will face the classical problem of operators presenting the data in a way that favours them best. Hopefully, with a rigorous analysis, we will come to a good cost base in order to determine the termination rates.”
If that happens, everyone should have confidence in the rates that are set for interconnection in South Africa, she said.
“LRIC+ is a very accurate measurement, but it is highly resource intensive and very dependent on the quality of the input data.” — (c) 2014 NewsCentral Media
