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Vodacom, MTN Extend Declines on Fee Cuts: Johannesburg Mover

Vodacom Group Ltd., South Africa’s largest wireless operator, fell to the lowest in almost five weeks after saying regulators’ plans to cut mobile-termination rates by half will have a “profound” effect on business.

Vodacom dropped as much as 2.3 percent to 113.31 rand, the lowest intraday price since Sept. 5, and was trading down 1.8 percent at 11:46 a.m. in Johannesburg. Volume exceeded the three-month daily average by 29 percent. Shares of second-ranked local competitor MTN Group Ltd. declined 1.9 percent to 189.32 rand, a three-week low, based on closing prices.

The fee that mobile-phone companies pay each other to end a call on another network will be cut 50 percent to 20 rand cents in March, and by another 5 cents each in the following two years, the Independent Communications Authority of South Africa said on Oct. 4. A related policy of charging smaller companies less than the largest operators for network access is “effectively subsidizing our competitors,” Vodacom Chief Executive Officer Shameel Joosub said yesterday in a statement.

“With the CEO coming out and saying it’s a disaster, it makes those sitting on the fence think about it again,” Kate Turner-Smith, an analyst at BPI Capital Africa Pty Ltd., said by phone. “He has to lay the platform to argue with ICASA.”

Market Share

Lower termination rates for smaller mobile-phone companies are designed to allow them to stay in business in a local industry dominated by Vodacom and MTN. Closely held Cell C (Pty) Ltd. is the third-biggest mobile-phone operator in South Africa with a 14 percent market share. The Telkom Mobile unit of fixed-line operator Telkom SA SOC Ltd. accounts for 2.2 percent of South African wireless market, according to the company’s website.

Telkom rose 3.4 percent to 27.40 rand, heading for the highest closing price since February 2012, after gaining 5 percent yesterday.

The rate cut is likely have a greater adverse effect on Johannesburg-based Vodacom than at MTN because of its larger role in South Africa’s mobile industry, Turner-Smith said.

“In the case of Vodacom, you’re looking at high single digit impact on earnings before interest and tax and low single digits for MTN,” she said.

Vodacom will discuss the proposals with the regulator to seek a more reasonable outcome, as the termination-rate reduction “can have a profound impact on our business and those of our suppliers, franchisees and other stakeholders,” Joosub said in yesterday’s statement.

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