South Africa Regulator Further Cuts Mobile-Termination Rates

South Africa’s communications regulator lowered the cost of terminating calls on mobile networks even as the biggest wireless operators said a reduction may force them to cut jobs and curb investment.

The amount mobile-phone companies pay each other to end calls on another network will halve to 20 cents ($0.02) as of March, the authority said today, confirming a proposal made in October. Mobile termination rates will fall to 15 cents from March 1, 2015, and to 10 cents a year later, it said.

South Africa’s biggest wireless operators, MTN Group Ltd. and Vodacom Group Ltd., had sought to negotiate with the regulator, arguing that rates should be reduced more gradually. The Johannesburg-based companies said Oct. 9 that if a compromise wasn’t agreed they may curb spending and cut staff. Lower mobile termination rates mean they would receive less from smaller players when their customers receive calls from other network users.

“Our recommendation hasn’t been accepted and we will be reviewing the potential impact both internally and externally,” Vodacom said in an e-mailed statement. “We will be in a better position to comment on the steps we will need to take to adjust our business model once that review has been completed.”

Vodacom shares fell 4.4 percent to 116.95 rand by the market close in Johannesburg, while MTN declined 4.2 percent.

Largest Impact

“Vodacom as a group is likely to experience the largest impact because of its superior market share position and reliance on South Africa,” BPI Capital Africa analyst Kate Turner-Smith said by e-mail. “The effect on MTN will be smaller because South Africa is a smaller contributor to the group.”

Vodacom’s market share in South Africa is about 43 percent and MTN’s 37 percent, according to Turner-Smith. Vodacom generates about 80 percent of sales from Africa’s biggest economy.

“Regulating in the public interest means the will and commitment to aggregate differing and sometimes conflicting societal interest, and to ensure that the public interest prevails at the end of the day,” Independent Communications Authority of South Africa Acting Chairperson Nomvuyiso Batyi told reporters in Johannesburg today.

The regulator has also reduced so-called asymmetry fees, which help smaller competitors including Telkom SA SOC Ltd.’s mobile unit and closely-held Cell C Pty Ltd. by charging them less to use the larger networks of Vodacom and MTN than those companies pay Cell C and Telkom for the same service.

Asymmetry Unjustified

“We feel that the level of asymmetry is unjustified and that there is no clear basis for the differential,” Vodacom said. “This asymmetry is clearly a subsidy for the smaller operators. We believe that the outcome today has been reached without following due process.”

The maximum rate Cell C and Telkom could charge the bigger players will be 44 cents per call in 2014 and will reduce by two cents a year until March 2017 when the rate will halve to 20 cents, according to ICASA.

“MTN doesn’t support the proposed mobile asymmetrical rates (i.e. competitive cross-subsidies) and believe these to be unsubstantiated,” Zunaid Bulbulia, chief executive officer of MTN’s South African operations, said in an e-mailed statement today. “MTN will also have to scrutinize and consider a number of other due process concerns once the regulation is published.”

Greater Competition

Telkom, which is 40 percent-owned by South Africa’s government, will pass on the reductions to its customers once it’s assessed the extent of the regulator’s decision, the Pretoria-based company said in an e-mailed statement. Telkom gained as much as 5.6 percent and traded 0.6 percent higher at the market close.

Cell C, the country’s third-biggest wireless operator, said the wireless market would become more competitive and sustainable, according to an e-mailed statement from acting CEO Jose Dos Santos. The new fees probably won’t lower its retail prices significantly, website reported today, citing the company’s Chief Financial Officer Robert Pasley.

The new rates “provide for greater competition” and will reduce the cost to communicate, Yunus Carrim, South Africa’s minister of communications, said in an e-mailed statement today.

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