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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.