Cape Town - Vodacom [JSE:VOD] will take a R1bn hit as South Africa's policy on Mobile Termination Rates (MTR) hurts the operator.
The company revealed in its Interim Financial Statement that the operator would see the decline as the Independent Communications Authority of South Africa (Icasa) pushed forward with asymmetric MTR reductions.
Termination rates are what operators pay each other for calls that terminate on rival networks and the regulator wants to ensure that junior operators Cell C and Telkom Mobile earn more from MTR than the more dominant Vodacom and MTN.
"When mobile termination rates come down, if you look at the billion [rand] impact that we're going to have this year, of that benefit, I would say 70% to 75% of that benefit goes to Telkom," Shameel Joosub, Vodacom Group CEO told Fin24.
Despite the MTR hit though, Vodacom reported that it grew subscribers in SA by 7.2 million and increased its revenue by 2.3% to R37.5bn.
Network investment
It warned though, that revenue would have grown by 2.9% were it not for the impact of MTRs.
Joosub didn't hold back any punches when he discussed how Telkom and Cell C have benefited from the asymmetric MTR reductions.
"In the past, Telkom had to pass that on to customers, but that's not the case anymore. I do ask the question of 'What exactly have we achieved?' because most of that benefit goes to Telkom and it's not being coming through in lower prices for customers in fixed-line calls.
"The remaining of the benefit goes to Cell C and I would say that contributes to the competitive environment or more importantly, to Cell C's profitability," he said.
Vodacom has invested R40bn into its South African network and passed the milestone of 1 000 LTE, or higher speed Long Term Evolution, base stations.
However, if the regulator continues to delay the assignment of spectrum, all operators in SA could face a spectrum crunch as particularly the demand for data accelerates.
Vodacom is intent on investing in its network and Joosub remained bullish about the company's plans.
"I think smaller operators are really suffering from that because it's a highly capital intensive business. This year, we will spend close to R8.5bn in South Africa alone."
Watch this video of Vodacom Western Cape chief Steven Barnwell talk about network quality.
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