MTR cuts would cost us R1 billion: MTN
MTN says that proposed cuts in mobile termination rates, as proposed last week by the Independent Communications Authority of South Africa (Icasa), would cost the group as much as R1 billion.
This is according to Bloomberg, who reported that Vodacom CEO, Shameel Joosub declined to quantify the effect of MTRs on the company, if implemented under current proposals.
Icasa announced on Friday, 4 October 2013, that it wants to cut the costs of terminating a call on a mobile network to R0.10 over the next three years.
A termination rate is the money networks pay to each other for connecting a call. MTRs have declined from R1.25 in 2009 to a current price of 40 cents.
“There’s a very real chance that if the fees go through the way they are at the moment, we’ll have to take a significant knife to costs,” MTN’s South Africa CEO Zunaid Bulbulia told Bloomberg. “We would have to take costs out of the business, right across the board. So staffing, commissions we pay, handset subsidies.”
In financial results for the year ended December 2012, MTN group revenue amounted to R135.11 billion, with South Africa making up R41.4 billion of that total. Ebitda for the local operation was at R14.5 billion.
“There’ll be less revenue for us to reinvest into the business, as we’re subsidizing our rivals,” Joosub said in an interview with Bloomberg.
In results for the year ended March 2013, Vodacom said that revenue from its South African operation amounted to R58.60 billion, out of a total R69.91 billion. Ebitda for its SA operation amounted to R22.4 billion.
Speaking at the MyBroadband 2013 conference in Midrand on Wednesday (9 October), Bulbulia suggested that constant pushing down of prices would lead to “market failure”.
He highlighted countries in Europe, as well as India, where as many as 28 out of about 30 operators were unsustainable, leading to a unprecedented situation where the market had begun pushing prices back up again to keep those companies afloat.
“Whats been proposed is very dramatic in terms of the drop,” Joosub told the conference. “The level of asymmetry is ludicrous,” he said, adding that Vodacom hoped to find a more amicable solution with Icasa.
On Monday (7 October), Joosub said: “We support Icasa’s goal of reducing mobile termination rates, provided that such a reduction is cost-based. Cuts in mobile termination rates can have a profound impact on both our business and those of our suppliers, franchisees and other stakeholders. We therefore support a managed ‘glide path’ of reductions over several years.”
“We will be responding to Icasa to make the case that the proposed reduction and glide path, which has an initial drop of 50% in March 2014, are too steep and could have serious negative impacts.”
MTN South Africa’s acting chief corporate service officer, Fusi Mokoena, said that the group was reviewing the document and will file a response thereafter.
“MTN will closely examine the contents of the proposed Regulations and analyse its potential regulatory and economic impact,” Mokoena said.
Under the proposed regulations, smaller operators such as Cell C and Telkom Mobile will be afforded preferential termination rates for six years, after which their rates will also be R0.10.
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