Presentation to the Parliamentary Portfolio Committee: Regulatory measures to address MTR 27 October 2009

Contents What governs interconnection in the ECA High MTR’s: limiting access to customer base MTR Price trends Regulatory History: History Chart of Accounts/Cost Allocation Manual Current initiatives

What governs interconnection in the ECA? Obligation to interconnect – S37(1) Regulations facilitating interconnection (S38) but not price Interconnection pricing principles – S41 “the Authority may prescribe ... a framework of wholesale interconnection rates to be charged for interconnection services ... taking into account the provisions of Chapter 10 Pro-competitive remedies Outcome of market review and regulations under S67(4) May specify price control Pricing principles do not mean price control – transparency of network components, non-discrimination, equivalent pricing of services

High MTR’s: limiting access to the end-user End-to-End call on the same network End-user A End-user B Network A Origination Termination The picture above is generic for any network Origination & Termination are equivalent services Cost of origination > Cost of termination On-net calls as cheap as possible to capture customers

High MTR’s: limiting access to the end-user End-to-End Call on different networks Origination Termination End-user A Network A Network B End-user B Origination & Termination are equivalent services Cost of origination > Cost of termination On-net calls as cheap as possible to capture customers Prevent access to own customer base through: High usage fees (R1.25/min) Access (monthly network interconnection fee) Excessive Terms and Conditions This is generic to any network/environment Access is governed by the 3 components mentioned in slide 3

History of Mobile Termination prices Intro of ECA 515% increase in four years The Authority only had the powers to approve the principles within an interconnection agreement (transparency of pricing; dispute resolution; fault line reporting etc) Has no price control powers until completion of Chapter 10 process

Regulatory History Competition Framework Interconnection Regulations 2007: Section 4B enquiry: all networks have SMP for call termination 2007: Draft IX regulations released (S38) Contained pricing aspects based on Telecommunications Act 2008: Release of draft S67(4) regulations 2009: IX regulations released, no mention of pricing Down arrows: the correct legal sequence Across arrows: what happened Pre-judged: applied a one-size-fits-all approach to addressing concerns Way forward: two separate clean processes. Section 38 and Section 67 are now separate. Transparency of pricing under Section 41. Level of fees charged (e.g. MTR) addressed through Section 67, potentially price controls 2009: Process for implementation designed. Regulations too rigid Regulations pre-judged the environment

History Regulatory Financial Accounts (COA/CAM) Licence condition for MCTS & PSTN licences Purpose is to reveal costing No focus on market power Viewed as input to competition framework when ECA was promulgated

Engagement with stakeholders From 2007 to now Process Reference to ECA Practical outcomes Market Definition Declaration of SMP Phase One 67(4)(a) and 67(6)(a) 67(4)(b) and 67(6)(b) 67(4)(d) and 67(5) Discussion document (2007) Engagement with stakeholders Findings document

Finalising the Process Reference to ECA Practical outcomes Phase Two Evaluation of potential remedies Choice of particular remedy Mechanism to implement particular remedy 67(4)(c) and 67(7) Draft Regulations Public Consultation Final Regulations on Call Termination End date: March 2010

Questions We have noted that operators have said a reduction in MTR will not feed through to retail prices The Regulator will remain vigilant in this regard.