Halving termination rates will hurt cellphone giants – Moody’s

2014-02-03 15:56

The halving of cellphone termination rates will hurt MTN and Vodacom but benefit smaller operators, says Moody’s.

Vodacom will be hardest hit because it has the biggest share of the South African mobile telecommunications market, with 47%, and the bulk of its cash flow comes from South Africa, says the ratings agency.

MTN holds 37% of the market and its South African operations accounts for less than a quarter of its total group earnings.

“We also expect a limited effect on margins because although revenues will fall, costs will also decline owing to the lower termination rates it pays to Vodacom,” Moody’s says of MTN.

It predicts that the rate cut will see Vodacom and MTN curb their future capital expenditure plans in South Africa. This, in turn, might see the companies become slower at introducing new technology.

But Cell C and Telkom Mobile will benefit from the reduction as they will pay their bigger competitors 50% less in call termination fees.

“They are net payers of interconnect [fees] and will benefit from the lower costs to terminate their subscribers on the networks of MTN and Vodacom.”

On March 1, the amount cellphone operators pay one another to terminate calls on another network will drop from 40c to 20c with further reductions to be introduced in the next three years.

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