ICASA ruling good news for MTN and Vodacom – pain far less than expected

The Regulator ICASA's change in Mobile Termination Rates threw a few tigers in among SA's cell phone pigeons, but the latest adjustment lessens the blow for dominant players Vodacom and MTN. TMT expert Richard Hurst unpacks what it all means – sure to reduce the intensity of the price war and remove the ugly scenario which was being envisaged for shareholders of the Big Two. – AH

ALEC HOGG: Welcome back to Power Lunch. South African's Telecoms Regulator has lengthened the time frame for planned cuts in mobile connection fees. This was after Vodacom and MTN challenged the proposed reductions in court. Richard Hurst, Senior Analyst of Enterprise at Ovum is with us in the studio. Just having a look, while we were off-air there, Richard, the share price of MTN has gone up 47 percent in the past year. It's a huge company. It's bigger than Sasol even, nearly R500bn market-cap. That, at a time, when you would have expected it maybe to be showing a little bit of weakness, given what's happening with mobile termination rates.

RICHARD HURST: I think the mobile termination rates story in South Africa is not impacting them in their other markets, their growth markets, Nigeria and Iran. However, having said that, you can be sure that those sector regulators operating in those nice, growth markets will also start looking at issues such as the mobile termination rates.

ALEC HOGG: But it is interesting. MTN got their licence in Nigeria in 2001; they had their first call there.

RICHARD HURST: That's right, yes.

ALEC HOGG: It's a fifteen-year licence, so that means that in 2016, just around the corner, it's not that long, where they, mind you they'd have to put another $285m, which was paid initially.

RICHARD HURST: This is right.

ALEC HOGG: Or something more. Is that a risk to MTN?

RICHARD HURST: I think the renewal process for that licence in Nigeria should be easier than anticipated. It shouldn't be too much of a stumbling block. I think, in Nigeria, there'll be other issues at hand, such as the mobile termination rate. I think that slowly but surely, these operators in the emerging markets are going to find themselves in a similar situation, as to what you are finding yourself here, in South Africa, between the consumers and the regulators, a rock and a hard place for some of them.

ALEC HOGG: It's almost like the South African operation is taking its cue from the first world.

RICHARD HURST: Yes.

ALEC HOGG: And then the other developing countries would take the cue from South Africa.

RICHARD HURST: It's almost like that. We are following the European models and the African or the other growth markets, are following the South African, 'what's happening' the trends, which are happening in South Africa.

ALEC HOGG: We did say in the introduction that the beneficiaries of all of this could be Cell-C and 8ta.

RICHARD HURST: Yes, but if we look at the original mobile termination rates – which were posted by ICASA, Cell C, and 8ta, stood to benefit far more than the current rates, which have been put out. They will still benefit but if they've developed any business plans around that, which I sincerely doubt – because that would be very premature, then I think they might be knocked.

ALEC HOGG: So if you were an investor in Vodacom and MTN, and you've seen the share price rise, we said MTN is 47 percent. Vodacom is up 17 percent in the past year. The change in the mobile termination rates is not going to scare you.

RICHARD HURST: It shouldn't because if we look at the interim results in the results of Vodacom there was some serious knocks from the MTR side, in terms of revenue but the latest MTRs tend to be more even handed in their approach. First off, allowing competition to flourish in the telecom sector, as well as stimulating investment in the basic infrastructure.

ALEC HOGG: And the whole asymmetry, will that affect the players?

RICHARD HURST: That's basically, to allow the new entrants to gain a toehold in the market because, obviously the network traffic, the majority of network traffic, is going to be going from the smaller players to the larger players because they have the larger pool of SIM cards, subscribers, etcetera. This just changes it, so it just gives them a little bit of an even footing in how to compete.

ALEC HOGG: That was Richard Hurst, Senior Analyst of Enterprise at Ovum. Well, that's all from us. After the break, you can catch 'Tonight with Bruce', but before we go, we'll leave you with a clip from Sasol's Chief Executive, David Constable, from the presentation this morning, on their financial results. You can catch the full interview, live, on Closing Bell, South Africa later today. Cheerio.