Cape Town - The halving of mobile phone termination rates will hurt MTN and Vodacom but benefit smaller operators, Moody's said on Monday.

Vodacom will be hardest hit because it had the biggest share of the South African mobile telecommunications market, with 47 percent, and the bulk of its cashflow came from South Africa, the ratings agency said.

MTN held 37 percent of the market and its South African operations accounted 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 said of MTN.

It predicted that the rate cut would see both Vodacom and MTN curb their future capital expenditure plans in South Africa, which could in turn see the companies become slower at introducing new technology.

But Cell C and Telkom Mobile would benefit from the reduction as they would pay their bigger competitors 50 percent 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 mobile phone operators paid each other to terminate calls on another network would decrease from 40 cents to 20 cents, with further reductions to be introduced in the next three years. - Sapa