Sharp fall for Vodacom, MTN shares

The shares dipped after Icasa said it planned to bring down the cost of calling between networks.

MTN offices in Johannesburg. Picture:

JOHANNESBURG - Shares of mobile operators Vodacom and MTN fell sharply on Monday after telecoms regulator Independent Communications Authority of South Africa (Icasa) said it planned to cut the fees they can charge rivals to use their network by 75 percent.

Conversely, after years of paying higher charges to connect to the two dominant mobile firms, fixed-line operator Telkom saw its shares jump to a one and a half year high.

Government is on a push to reduce call costs that are above the average on the continent.

Icasa said on Friday after the market closed that it planned to cut so-called mobile termination rates (MTR) to 10 South African cents by 2016, from 40 cents now.

The fixed-line termination rate - the amount mobile phone companies pay for calls to landlines - will remain unchanged.

"It has blasted the way open by drastically reducing the single largest cost factor in prices, namely the MTR, which both Vodacom and MTN enjoy," said Alan Knott-Craig, chief executive at Cell C and former Vodacom head.

Knott-Craig said he believes Icasa did the right thing by bringing down call termination rates.

He says the move will help smaller players like his firm.

Three years ago, Icasa ruled a lack of competition in connecting calls had led to inefficient pricing, and imposed new pricing on Vodacom and MTN for mobile connections.

"What they've done this time is a whole bunch smarter and I have to say they've done it quickly and very efficiently," said Knott-Craig.

Yet South Africa still ranks 30th among 46 African countries in terms of pre-paid telephony affordability, according to a 2012 study by Research ICT Africa.

The report cited neighbouring Namibia as having some of the cheapest call rates despite having had similar call termination rates as South Africa only a few years ago.

Icasa's draft regulations are due to be published this week and companies will have 14 days to comment.

If past experience is anything to go by, the companies are likely to drag their feet in passing on the cuts in the form of lower tariffs, according to Spiwe Chireka, a telecoms analyst at advisory firm IDC.

"Service providers are not quick to cut rates when termination rates go down. It would be interesting to see how Icasa or the Department of Communication would ensure that those mobile termination cuts are transferred into consumer tariffs," she said.

Shares of Vodacom, which has the largest number of South African subscribers and a market value of R184 billion, were down more than six percent to R116.00 at the close of trading on Monday.

MTN, which with a market value of R375 billion is Africa's largest mobile operator but has a smaller portion of the domestic market, dropped three percent to R193.00.

Telkom, on the other hand, jumped five percent to R26.50, its highest level since March 2012.