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Vodacom ready for battle over price cuts

Johannesburg - Vodacom [JSE:VOD] plans to launch a legal challenge against regulatory price cuts that could cost it as much as R1bn in the coming year, the company said on Wednesday.   

After reporting a 10% increase in third-quarter revenue, Vodacom also said that it is close to finalising negotiations with India's Tata Communications  over the purchase of its Neotel unit.

Vodacom has the largest customer base in South Africa and is expected to be the hardest hit by the government's plans to halve the fees mobile companies can charge each other to use their networks.

The cuts are expected to squeeze the earnings of the biggest players - who have also invested the most in their networks - while helping smaller companies such as Telkom SA.

"We have concerns about the process used to determine these published rates. So we intend to challenge the legal validity of the process used," chief executive Shameel Joosub said on a call with analysts, adding that the cuts could cost it R1bn in the next financial year.

The Independent Communications Authority of South Africa (ICASA) last month said that it would cut the rate a company can charge rivals for using its mobile network to 20 cents per minute per call from March 1, with a further reduction to 10 cents by March 2016.

The regulator said that such fees can deter competition if they are too high, while Vodacom said the cuts do not take into account the cost of running its network.

Though dwarfed on the rest of the African continent by rival MTN [JSE:MTN], Vodacom is still the dominant player in South Africa.

MTN is expected to fare better from the rate cuts, given its diverse geographic base and the high level of pre-pay users among its South African customers.
Pre-pay customers typically tend to maintain the same spending levels when prices drop, taking advantage of the lower rates by talking longer.
     
Neotel deal

Joosub said that negotiations over Neotel are at an "advanced stage" and it is confident an agreement can be reached with Tata Communications in the coming weeks.

Vodacom said in September that it was in exclusive talks to buy the unlisted South African company - a deal that would give it a large fibre-optic network for high-speed Internet, a significant boost for its plans to increase its data business.  

The company's results for the three months to December 21 showed a 40% jump in data revenue, contributing R3.6bn as total revenue climbed by more than 10% to R20.2bn.

Vodacom, which also has operations in Mozambique, Lesotho, Nigeria, Tanzania and the Democratic Republic of Congo, is also trying to beef up its presence across the continent.

It increased its customer base by more than 12% in its third quarter, bringing its total of active users to 56 million.

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