Bloomberg News

Vodacom Will Fight Regulator Over Plans to Cut Mobile-Phone Rate

October 07, 2013

Vodacom Group Ltd. (VOD), South Africa’s largest wireless provider, said it will contest the telecommunications regulator’s plans to halve mobile termination rates from March and cut fees for smaller operators.

The amount mobile-phone companies pay each other to end calls on another network will drop 50 percent to 20 cents ($0.02), the Independent Communications Authority of South Africa said in an Oct. 4 statement. It will then fall by 5 cents in each of the following two years.

“Cuts in mobile termination rates can have a profound impact on our business and those of our suppliers, franchisees and other stakeholders,” Vodacom Chief Executive Officer Shameel Joosub said in a statement. The company will respond to the regulator and argue the initial drop of 50 percent is “too steep and could have serious negative impacts.”

The authority last revised call termination rates in 2010 after ruling the market was uncompetitive. Vodacom and MTN Group Ltd. (MTN) dominate the mobile industry in South Africa with a combined share of about 84 percent, according to a report by Deloitte Digital published in February.

Vodacom fell 6.3 percent, the most since June 24, to 116 rand at the close in Johannesburg. MTN dropped 3.1 percent to 193 rand.

“The market is seeing it as ICASA’s intention to drive prices down, so obviously there’ll be pricing pressure” on Vodacom and MTN, BPI Capital Africa Pty Ltd. analyst Kate Turner-Smith said by phone.

‘Subsidizing Competitors’

Johannesburg-based Vodacom will discuss the proposals with the regulator to seek a “more reasonable outcome,” Joosub said in the statement. Changes to so-called asymmetry, which charges smaller companies less than the biggest market players for network access, are “effectively subsidizing our competitors,” he said.

Lower termination rates are designed to benefit smaller mobile-phone companies as they will pay less to access the much larger networks operated by MTN and Vodacom. Fixed-line operator Telkom SA SOC Ltd. (TKG), which said on its website its Telkom Mobile unit has a 2.2 percent market share, gained 5 percent to 26.50 rand.

Closely held Cell C Pty Ltd. is the third-biggest mobile-phone operator in South Africa with a 14 percent market share. The yield on the company’s dollar bond due in July 2015 climbed 249 basis points to 11.71 percent, a one-month high.

The rate cut “has blasted the way open by drastically reducing the single largest cost factor in prices, namely the mobile termination rates which both Vodacom and MTN enjoy,” Cell C Chief Executive Officer Alan Knott-Craig said in an e-mailed statement. “This is but the first regulatory step in normalizing the South Africa telecommunications space.”

Editor:

To contact the reporter on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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