The price war in South Africa’s mobile industry is starting to take its toll, evidenced this week by the declining subscriber numbers at MTN, which conceded that it had been too slow in cutting its rates to match its rivals.

But behind the scenes a much more interesting battle is brewing between South Africa’s four mobile operators. It’s one that will shape the direction and health of the industry for years to come.

The fight, which will come to a head before the end of the year, is over whether smaller operators Cell C and Telkom Mobile will continue to enjoy preferential wholesale rates for calls between their networks and those of their bigger rivals, MTN and Vodacom.

Cell C CEO Alan Knott-Craig is lobbying hard for this “asymmetry” in mobile termination rates (MTRs), arguing that it’s only fair for smaller operators like his to be given a helping hand by the regulator, especially since it’s these companies, desperate to gain market share, that are forcing MTN and Vodacom into reducing their retail tariffs, thus benefiting consumers.

Cell C and Telkom Mobile have enjoyed asymmetry in recent years. This has formed part of the annual reduction in MTRs managed by the Independent Communications Authority of South Africa (Icasa), which has brought them down from R1,25/minute in peak calling times four years ago to 40c/minute now. The degree of asymmetry has fallen from 20% to 10% over this period.

Knott-Craig now wants Icasa to intervene by imposing more aggressive asymmetry for players that don’t have “significant market power”, defined as 25% or higher market share. Cell C has about 17% of the market as measured by Sim cards in active use. Its revenue market share is about 10%.

Cell C’s newly appointed chief financial officer, Robert Pasley, told me this week that parent Oger Telecom’s decision to provide US$350m in new equity funding was largely predicated on the operator winning regulatory support for asymmetry. He believes the company will get this support.

But Vodacom and MTN are having none of it. They argue that Cell C was licensed 13 years ago and, since it’s no longer a newcomer to the industry, doesn’t deserve this sort of regulatory support.

If comments by MTN South Africa CEO Zunaid Bulbulia this week are anything to go by, Cell C’s bigger rivals are preparing for the mother of all regulatory battles to ensure asymmetry is not imposed on them from next March, when Icasa is set to introduce lower MTRs.

Bulbulia told me that asymmetry creates “artificial floors and ceilings in the market that prohibit competition”. In addition, he argued, continuing to give Cell C asymmetry would be “bizarre” as it would mean “punishing the majority of South Africans who are on Vodacom or MTN” who, he claimed, would have to pay higher rates.

Asymmetry in MTRs would simply distort the market and have unintended consequences, he said.

Icasa is going to have weigh up both sides of the argument — considering carefully the views that will be expounded ad nauseam by the operators’ armies of lawyers and economists — and then make a decision based on sound economics, drawing on lessons learnt in other markets.

Both sides appear to have solid arguments. Knott-Craig is right, for example, that it’s the smaller operators that have forced down mobile prices. It was Cell C that led the charge with its 99c/minute calling plans, forcing first Vodacom and then MTN to slash their tariffs. Telkom Mobile has now followed suit with even lower prices, though it’s far from clear whether South Africa’s fourth mobile entrant has a sustainable business model.

It’s also difficult to take the bigger operators’ arguments seriously after they warned four years ago that slashing MTRs could have unintended consequences and wouldn’t necessarily lead to reductions in retail tariffs. It’s now clear that the cuts in MTRs have translated directly into lower retail tariffs.

But cutting MTRs was one thing. Introducing aggressive asymmetry for anyone with less than 25% market share is quite another and demands proper interrogation by Icasa.

I don’t envy the regulator its duty.