UPDATE 2-S.Africa communications regulator slashes mobile call costs

Wed Jan 29, 2014 6:22am EST

* SAfrican telecoms regulator halves mobile phone fees

* Regulator says to stoke competition, customer value

* Plan likely to affect revenue at Vodacom, MTN (Adds analyst, CEO comment)

By Wendell Roelf

CAPE TOWN, Jan 29 (Reuters) - South Africa's telecoms regulator has halved the fees mobile phone companies can charge rivals to use their networks, part of a plan to reduce call costs in Africa's largest economy and enhance competition.

The Independent Communications Authority of South Africa (ICASA) said on Wednesday charges would be cut to 20 South African cents per minute per call from 40 cents from March 1, before being further lowered to 10 cents by March 2016.

Such fees are a vital element of the mobile telecom market because they allow companies to set up on the basis of paying fees to use existing networks. But the regulator argues that if they are too high they deter competition.

Fees for fixed-line calls will also be reduced over the next three years.

"Our beacon is to attract local and foreign investors and position this industry as a sector of choice," the ICASA's acting chairwoman, Nomvuyiso Batyi, said.

Fixed-line provider Telkom and unlisted mobile operator Cell C are likely to be the biggest beneficiaries of the new rates, as their bills for connecting calls to industry leaders Vodacom Group Ltd and MTN Group Ltd drop by 50 percent.

The chief executive of Vodacom, a unit of Britain's Vodafone Plc, said the decision was to the detriment of its customers and business.

"This is a subsidy which in effect means that Vodacom will be charged more to call Cell C and Telkom Mobile," Shameel Joosub said in a statement. "This prejudices Vodacom's customers and rewards those who have not invested in their networks at the expense of those who have."

Officials at the other telecom companies were not immediately available for comment.

Telkom and Cell C have been asking the regulator to slash the rates that were introduced to boost the mobile industry while it was still in its infancy. Both say they have had to pay massive bills to the two telecoms companies as most of their calls are to the two big players.

Some analysts say the new rates will provide a more level playing field for Telkom, Cell C and landline provider Neotel.

"It's probable that the smaller operators are going to become more aggressive on pricing in the next three years as they are going to have a bigger advantage with greater asymmetry than previously proposed," said Greg Cort, telecoms analyst at investment management company Electus.

MTN is unlikely to be hit as hard as Vodacom due to its higher percentage of prepaid customers, who do not typically reduce the amount of money spent on phone bills when prices drop and instead tend to talk for longer.

By contrast, customers with contracts tend to retain their contracts at cheaper rates.

Shares of Telkom rose 1.6 percent to 32 rand at 1017 GMT.

Those of rival MTN were down 1 percent to 202.99 rand, while Vodacom has lost 1.3 percent at 120.72 rand. (Additional reporting by Helen Nyambura-Mwaura in Johannesburg; Editing by David Dolan and David Holmes)