{"id":49111,"date":"2013-11-07T23:48:06","date_gmt":"2013-11-07T21:48:06","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=49111"},"modified":"2013-11-08T09:35:55","modified_gmt":"2013-11-08T07:35:55","slug":"vodacom-and-mtns-rude-awakening","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/mobile\/49111\/vodacom-and-mtns-rude-awakening\/","title":{"rendered":"Vodacom and MTN’s rude awakening"},"content":{"rendered":"

Financial services group\u00a0First Avenue Investment Management<\/a>\u00a0warns that MTN<\/a> and Vodacom<\/a> will need to grow\u00a0data revenue between 65% and 70% over the next three years in order to absorb the impact of Mobile Termination Rates on earnings before interest, taxes, depreciation, and amortisation.<\/p>\n

Icasa<\/a> announced in 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.<\/p>\n

A termination rate is the money networks pay to each other for connecting a call.\u00a0MTRs have declined from R1.25 in 2009 to a current price of 40 cents.<\/p>\n

In a research noted entitled: SA Mobile Telecoms – A Price War Part\u00a0II, First Avenue said that\u00a0conservative analysis points to an effective tariff decline from R1.06 \u2013 R1.14 per minute to 88c (19% reduction) by 2014 and 75c (29% reduction) by 2016.<\/p>\n

\n\n\n\n\n\n\n\n\n\n
Termination rate per minute
\n<\/strong><\/td>\n		Vodacom \/ MTN<\/strong><\/td>\nCell C \/ Telkom Mobile
\n<\/strong><\/td>\n		% Reduction
\n<\/strong><\/td>\n		% Asymmetry<\/strong><\/td>\n<\/tr>\n
March, 2013<\/td>\n40c<\/td>\n40c<\/td>\n29%<\/td>\n10%<\/td>\n<\/tr>\n
March, 2014<\/td>\n20c<\/td>\n39c<\/td>\n50%<\/td>\n95%<\/td>\n<\/tr>\n
March, 2015<\/td>\n15c<\/td>\n33c<\/td>\n25%<\/td>\n120%<\/td>\n<\/tr>\n
March, 2016<\/td>\n10c<\/td>\n26c<\/td>\n33%<\/td>\n160%<\/td>\n<\/tr>\n
March, 2017<\/td>\n10c<\/td>\n20c<\/td>\n–<\/td>\n100%<\/td>\n<\/tr>\n
March, 2018<\/td>\n10c<\/td>\n14c<\/td>\n–<\/td>\n40%<\/td>\n<\/tr>\n
March, 2019<\/td>\n10c<\/td>\n10c<\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

“We feel that this could be an even steeper decline if smaller operators such as Cell C<\/a> and Telkom Mobile<\/a> are aggressive with pricing and pass on the full asymmetry and termination rate reductions to consumers.”<\/p>\n

“In fact, Telkom Mobile has recently introduced an enhanced Sim Sonke plan that enables calls to any network for 75c per minute even when roaming nationally on the MTN network,”\u00a0First Avenue said.<\/p>\n

Assuming flat subscriber growth and increase in usage, the net impact of these reductions will be a reduction in airtime revenue of R6 billion and R8.5 billion for MTN SA and Vodacom SA, respectively.<\/p>\n

“This impact could be worse if these operators lose market share or need to lower tariffs further than forecast,” the\u00a0analytic\u00a0group said.<\/p>\n

“To put these reductions in perspective, data revenue would have to grow between 65% and 70% over the next three years in order to absorb this impact on ebitda. However, this is unlikely, given that SA data revenue growth has already slowed to 16%-20% p.a. as competition has intensified over the past year,”\u00a0First Avenue said.<\/p>\n

\"Effective<\/a>

Effective Tariffs and Termination Rates<\/p><\/div>\n

It pointed out that given recent capex and opex growth of approx. 5%-11%, “we expect that ebitda\u00a0will decline over the next 3 years as a result. Asymmetry will also move Vodacom and MTN SA from being net receivers of interconnect to net payers of interconnect which will further impair margins”.<\/p>\n

“The level of ebitda\u00a0decline will depend on efficiency gains achieved through cost cutting; we anticipate an ebitda\u00a0decline of more than 15%,” First Avenue said.<\/p>\n

The group said that Vodacom SA is most exposed with 89% of ebitda generated in SA. In contrast, MTN has 25% of its ebitda\u00a0generated in SA.<\/p>\n

“Furthermore, MTN is spending R 6.4 billion p.a. and Vodacom is spending ~R7 billion p.a. on capex. Our view is that this level capital expenditure will not be rewarded with a return above cost of capital given the changing industry dynamics.”<\/p>\n

“As a result, the next few years will be\u00a0challenging for both operators and there will be greater reliance on foreign operations and \/ or new operations to compensate for the lack of growth in South Africa,”\u00a0First Avenue said.<\/p>\n

More news on MTRs<\/h3>\n

Reason for concern at MTN?<\/strong><\/a><\/p>\n

Data revenue: MTN vs Vodacom<\/strong><\/a><\/p>\n

MTR price cuts: how it will affect Vodacom and MTN<\/strong><\/a><\/p>\n

MTR cuts would cost us R1 billion: MTN<\/strong><\/a><\/p>\n

Vodacom bemoans asymmetry plans<\/strong><\/a><\/p>\n

Operators mull action on termination rate cuts<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

An analyst warns that MTN and Vodacom would need to grow data revenue between 65% and 70% over the next three years in order to absorb the impact of MTRs on Ebitda.<\/p>\n","protected":false},"author":9,"featured_media":29722,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[42,2160,26,28,6847,1075,27],"class_list":["post-49111","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","tag-cell-c","tag-first-avenue-investment-management","tag-headline","tag-mtn","tag-mtrs","tag-telkom-mobile","tag-vodacom"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=49111"}],"version-history":[{"count":11,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49111\/revisions"}],"predecessor-version":[{"id":49141,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49111\/revisions\/49141"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/29722"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=49111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=49111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=49111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}