Sun | Jan 20, 2019

Mobile termination rates versus value products

Published:Friday | November 28, 2014 | 12:00 AM

Jamaicans consuming a lot more minutes in talk

Telecoms cite innovation, regulator pins growth to lower rates

McPherse Thompson, Assistant Editor - Business

Jamaicans talked for more than 11 billion minutes on their mobile phones in less than two years after the initial reduction of mobile termination rates, according to analysis by the Fair Trading Commission (FTC).

The agency said 1.28 billion minutes of that talk time, around 13 per cent, was additional business resulting from market interventions by the Office of Utilities Regulation (OUR), which began rolling back termination rates in 2012.

But top mobile provider Digicel Jamaica is querying the FTC analysis, and was dismissive of the findings.

"First of all, we don't understand the source of the data, which, to our mind, is either incorrect or distorted," the company said in response to Financial Gleaner queries.

The FTC estimated that, to the extent that mobile rates for standard calling plans ranges between the US dollar equivalent of Jamaican 1.77 cents and 15.75 cents per minute, the market value of those benefits ranges between US$22.7 million and US$201.7 million.

The agency made the determination after an assessment of the benefits accruing to subscribers of telecommunications services as a result of the reduction in mobile termination rates, or MTR, to $5 per minute in July 2012 and then to $1.10 per minute in July 2013.

Mobile termination rate refers to the price one operator pays to complete or terminate calls on a mobile network belonging to another operator.

All other things being equal, the FTC said, lower mobile termination rates stimulate competition between smaller and bigger networks.

But while it anticipates that the lower rates are good for consumers, the agency said "the extent of such benefits was uncertain".

Under its assessment, the FTC sought to quantify the benefits by identifying changes in the quantity of talk time - or mobile call volume - attributable to lower termination rates.

The competition watchdog concluded that after the reduction and up to March 2014, subscribers would have talked for approximately 10.02 billion minutes if the termination rate was not reduced. Instead, they consumed 11.3 billion minutes.

"Accordingly, the intervention benefited consumers by 1,281 million minutes over a 21-month period," the FTC said.

Negative Effect

Digicel, however, insists that the MTR adjustment has had a negative effect and proffered a different take on why mobile minutes may have risen.

"If there has been an increase in talk minutes, quite likely it is as a result of, in the case of Digicel, the injection of more offers into the market such as our Gimme Five and BFFF (Best Friends For Free) offers. This would not translate into increased revenue for Digicel," said the telecoms, which has a customer base of about two million subscribers in a market of 2.88 million users.

"The MTR reduction has taken value out of the market as it has reduced revenues for operators and therefore taxable income for the Government, traditionally obtained from the Jamaican telecommunications sector."

LIME Jamaica says, however, that it has gained business in the period, although it too linked the additional market share to its value product in responses to the Financial Gleaner.

"The overwhelmingly positive consumer response to our best-value Talk EZ $2.99 rate, also evidenced by the addition of another 150,000 subscribers in 100 days in 2013, have contributed to steady quarterly gains in mobile services revenue. We expect this trend to continue with the more recent introduction of even better mobile voice and Internet value featured in the increasingly popular MVP plan," said the telecoms.

Watershed Moment

Still, LIME made a more direct linkage between its market performance and the MTR to shareholders earlier this year when it reported on its stewardship for financial year 2014 - then referencing the new rates as a watershed moment. With the termination rates in place, "we passed on tremendous savings to consumers whose right to fair voice call pricing we had sworn to protect," said Chairman Chris Dehring, as published in the company's annual report that was released at the end of June.

"Now at a record low of $1.10 per minute, the MTR has created a more level playing field. We can now operate with greater levels of certainty where the deployment of capital and strategic planning are concerned. The board is pleased at this turn of events and considers the significant change a 'watershed moment' in the life of our company and the industry on a whole," said Dehring.

"Nowhere else is the impact of a lower MTR more palpable than in the massive increase in our mobile subscriber base, which moved by 31 per cent during the review period."

The report indicated that the company had gained 165,000 mobile customers.

The company's outpayments - that is, amounts paid to telecoms on whose networks LIME calls terminate - also fell. In a line item for 'outpayments and direct costs', LIME reported that those charges dropped to $5.3 billion at yearend March 2014 from $7.15 billion the prior year. There was no disclosure for inpayments, that is, the monies LIME collected from other telecoms whose calls terminate on its network.

Mobile Revenue Up

Comparatively, mobile revenue rose from $5.2 billion to $6.67 billion in the same period.

Still, LIME said the numbers cannot rightly be said to reflect a saving to the company.

"Termination charges are transmitted to the carrier on which the call is landed. Since the consumer pays for the termination charge, it is the consumer who benefits and not LIME."

The OUR, back in 2012 when it initially cut the MTR, said its reform of termination rates was to ensure that the market did not revert to a monopoly, noting then that the indicator for industry competitiveness, the Herfindahl Hirschman Index, had risen sharply from 5,104 points to more than 7,223 points after the acquisition of Claro Jamaica by Digicel.

The market is less competitive the closer the index moves to 10,000 points.

The OUR determination was fought by Digicel, which had proposed a rate of up to $9 for domestic MTR and about $12 for international traffic.

Asked for comment Thursday on Digicel's current take on its analysis of the benefits almost two years after the rate cuts, the FTC said the data was provided by the OUR.

The OUR was still considering its response up to press time.

An update on Jamaica's current ranking on the Herfindahl Hirschman Index was also not immediately available.