MTN SA warns of cost cuts under tariff plans

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Johannesburg - MTN South Africa may be forced to accelerate its cost reduction programme if new interconnection rates proposed by the government are adopted, according to chief executive Zunaid Bulbulia.

The company is reviewing its supplier and contractor base as market saturation and pressure on revenues take a toll on the margins of operators across the industry.

Tariffs had also fallen substantially over the past 10 to 15 years, Bulbulia said this week.

“We are aggressively managing costs. If the mobile termination regime goes in a direction that we are not anticipating, we have to increase that aggression to another level,” he added.

MTN was engaging its “multiples of hundreds of contractors” and was trying to make them share some of the costs, Bulbulia said. “We are looking at commissions, we are looking at discounts… Where necessary we are asking contractors to leave the organisation because we don’t need their services anymore.”

Some contract workers were being added to MTN’s payroll permanently to reduce the fees paid to contracting agencies.

The company’s cost drivers include investment in the network, particularly as data sales are prioritised. Data networks are costly and require investment in fixed infrastructure such as fibre-optic networks. MTN has also bought capacity in undersea connectivity.

MTN has said its investment capability could be hurt by a proposal by the Independent Communications Authority of SA (Icasa) to halve interconnection fees to 20c a minute from March. Operators pay interconnection fees to connect calls on each other’s networks.

Vodacom and MTN disagree with Icasa’s intention to prolong asymmetry, a regulatory provision that enables new market entrants and smaller players to charge their larger rivals higher termination fees to promote competition.

Icasa proposed the current 10 percent asymmetry advantage be increased and then phased out over six years. Bulbulia said asymmetry was only conducted over three years internationally.

He said Telkom Mobile, which was less than four years old, was entitled to asymmetry but not Cell C, which was 12 years old.

In a note to clients, RMB Morgan Stanley recently forecast that if Icasa cut the rate, a 50 percent interconnect rate cut would reduce Vodacom’s earnings by between 5 percent and 10 percent.

MTN would incur a “small negative impact” but the cuts would be positive for Telkom, which has been a net interconnect payer. Vodacom is the largest net receiver of wireless interconnection revenue, in the region of R1.3 billion a year.

“We’ve said we’re happy to accept any mobile termination regime but it must be based on a cost-based proposal,” Bulbulia said.

He declined to comment on speculation that MTN was in talks with Telkom over an infrastructure sharing deal.

Bloomberg recently cited sources who spoke on condition of anonymity because the talks were private.

“There are discussions with various parties,” Telkom spokesman Pynee Chetty said yesterday. - Business Report

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